Buechler is bullish on New Zealand

Equity buyers in New Zealand could be investing in a country at the same stage as Norway in the pre-North Sea oil era, says a fund manager.
Buechler Capital Asset Management is the lead portfolio manager of the Kiwi-Pacific Fund and also manages assets invested in the US. CEO and majority shareholder William Buechler talks about his investment philosophy.

What is your background?
Many years ago, I was a commodities trader. I worked in the US and in the UK with the research division of ContiCommodity, a subsidiary of Continental Grain.

In 1987, just before the stockmarket crash, I was asked to move to Sydney to run the retail offices of Prudential Securities in Australia. I did not move but developed an interest in that part of the world, which led to investing there. IÆve worked with corporate and public sector pension plans throughout the US.

What about your fund?
The fund consists primarily of high-net-worth-individuals and family offices and was founded around two years ago. It has achieved a return of 20% per annum after expenses. Our minimum investment size is $100,000 and we invest in listed equities.

I am currently in discussion with investors, including several fund of funds, to raise approximately another $250 million. Currently, the market capitalisation of the New Zealand stockmarket is around $85 billion and I want to ensure our fund size is such that we retain fleetness of foot and can trade actively in the market without liquidity issues.

What is your asset allocation strategy?
We have about 70% of our portfolio invested in New Zealand and the balance in Australia. Our analysis demonstrates that this allocation gives us the lowest correlation to the S&P500 and European markets. Adding Australia improves the risk-return ratio on an historical basis.

I split my time between California and Auckland to ensure I am in close touch with my target geography.

What is your sector focus?
We are opportunistic investors and often look for companies that will be affected by underlying commodity price movements. In New Zealand we are bullish on natural resources, infrastructure and agriculture.

We believe oil and energy is an interesting play as New Zealand has big, barely explored territories with promising geology for oil deposits. The oil story in the country is in the beginning û New Zealand could well be on a similar path as Norway was in the pre-North Sea era. Infrastructure stocks in the region provide opportunities for value investors with strong dividend flows and low price-to-earnings multiples.

What makes you bullish on New Zealand equities?
In 1987 New ZealandÆs listed market capitalisation fell 70% overnight. The effect of that was felt for an entire generation of Kiwis, who swore off stocks. The index did not go back to 1987 levels until 15 years later in 2002.

Less than 15% of New ZealandÆs population have any equity investments at all. Compare this to the US where 76% of the population has some exposure to equities.

Property prices in New Zealand recently softened and interest rates are rising, impacting consumer confidence. Kiwis will be forced to diversify into other assets as historically their savings were deployed in property. Equity markets will benefit. New ZealandÆs high short-term interest rates provide an incentive for money to continue to flow into the country to capture the interest-rate differential and this will, in time, force the currency to new highs.

I also believe the KiwiSaver, a government-sponsored retirement plan introduced recently, will increase the money available for investing in the stockmarket. This is similar to the 401(k) retirement plans offered by employers in the US and the government is offering incentives to encourage people to invest. The KiwiSaver is expected to accumulate between $7 billion and $10 billion in assets.

What is driving growth?
One fallout of the under-valuation on the bourses is that 90% of wealth in New Zealand is privately owned. Hitherto, there was no incentive for companies to list. Some companies are listed on the Australian Securities Exchange but the majority are closely held.

As an example, New Zealand supplies around 40% of the worldÆs milk consumption and much of this is from Fonterra, one of the worldÆs largest dairy companies. Fonterra, which is closely held, is owned by 11,000 New Zealand dairy farmers. It is benefiting from growing demand for milk and rising realisations. As it increases the payout to its co-op members, this money will flow into New ZealandÆs economy. Last year the company paid out a dividend of $9.5 billion.

What New Zealand companies are you bullish on?
New Zealand Oil & Gas is one. For years its stock price went nowhere. However, thanks to a new management, cutting-edge exploration efforts and the recent declaration of a dividend for the first time in many years, it has a strong future.

Across the Tasman Sea is a wonderful company named Australian Worldwide Exploration. It is the operator and an equity shareholder in Tui, an oil project 50 kilometres off the west coast of New ZealandÆs North Island which could be one of the fastest in the world to reach payback.

Telecom Corporation of New Zealand has had some recent problems dealing with government directives but has historically given a healthy dividend yield and with new management in place responding to the new situation, this company could be a true turnaround stock.

This story was first published in the May issue of FinanceAsia magazine.
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