Nikko AM NZ Bond Funds - Changes to Mandates | Nov 23


From 1 December 2023, we are making changes to the mandates of following funds:

-    Nikko AM Wholesale NZ Bond Fund/Nikko AM NZ Bond Fund
-    Nikko AM Wholesale NZ Corporate Bond Bund/Nikko AM NZ Corporate Bond Fund/Nikko AM KiwiSaver Scheme NZ Corporate Bond Fund

Please see below for a summary of the changes:


-    Allow the NZ Bond Fund to invest into NZ issuers/issues in a foreign currency.
o    This will align with the NZ Corporate Bond Fund’s current ability to do so.
o    Maximum exposure of NZ issuers/issues in foreign currency for each fund will be capped at 30%.
-    Allow the NZ Bond Fund and NZ Corporate Bond Fund to invest into Australian companies issuing in AUD.
o    This will be limited to Australian companies who are deemed authorised-deposit-taking-institutions under APRA, who have a subsidiary in New Zealand.
    A subsidiary will be defined as an Australian company with >50% ownership in a New Zealand issuer
o    The maximum exposure in each fund will be 30%.
-    The credit quality of both the funds will not be impacted by the proposed changes and both funds remain limited to Investment Grade issues only. 
-    The total fund exposure to bonds issued in foreign currency is limited to 30% combined (applies to NZ issuers in foreign currencies or Australian issuers in AUD)
-    All foreign currency exposures are to be hedged to the NZD within an operational range of 95% to 105%.

Please see below for a table depicting the proposed changes:
 

We are making these changes for several reasons:
1.    At times, NZ Companies issuing in offshore markets will have wider credit margins compared to similar NZ issues, providing opportunities to take advantage of any pricing differentials.
2.    Investing in the parent company of a NZ subsidiary (e.g., CommBank/ASB) may present opportunities for enhanced credit quality and often better pricing for similar risks. 
3.    Proposed changes to the RBNZ’s bank liquidity rules may result in NZ registered banks holding a much narrower range of bond issuers in their books. This means a significant number of issuers (including bank issuers) will likely increase the volume of debt issued in offshore, rather than domestic debt capital markets. 

In summary, these changes are intended to increase the potential returns to investors without increasing the risk profile of the portfolios. The changes also provide the ability to invest into a subset of Australian/AUD issues which may present advantages over NZ issues and increased diversification within the funds. 

The focus of the NZ Fixed Income team will remain on NZ issuers and issues and therefore the NZ Bond Fund and NZ Corporate Bond Funds will remain predominantly concentrated upon New Zealand. 

What do you need to do?
You do not need to do anything regarding these changes. 


Next Steps
We will be implementing these changes on 1 December. If you have any questions please contact Sam Bryden, Sam Belton or Kady Buchanan who can assist you. 
                       
Sam Bryden                  Sam Belton                Kady Buchanan
Head of Distribution              Senior Relationship Manager    Senior Relationship Manager    






Important Information

This document is prepared by Nikko Asset Management Co., Ltd. and/or its affiliates (Nikko AM) and is for distribution only under such circumstances as may be permitted by applicable laws. This document does not constitute investment advice or a personal recommendation and it does not consider in any way the  suitability or appropriateness of the subject matter for the individual circumstances of any recipient. This document is for information purposes only and is not  intended to be an offer, or a solicitation of an offer, to buy or sell any investments or participate in any trading strategy. Moreover, the information in this material will not affect Nikko AM’s investment strategy in any way. The information and opinions in this document have been derived from or reached from sources believed in good faith to be reliable but have not been independently verified. Nikko AM makes no guarantee, representation or warranty, express or implied, and accepts no responsibility or liability for the accuracy or completeness of this document. No reliance should be placed on any assumptions, forecasts, projections, estimates or prospects contained within this document. This document should not be regarded by recipients as a substitute for the exercise of their own judgment. Opinions stated in this document may change without notice. In any investment, past performance is neither an indication nor guarantee of future performance and a loss of capital may occur. Estimates of future performance are based on assumptions that may not be realised. Investors should be able to withstand the loss of any principal investment. The mention of individual stocks, sectors, regions or countries within this document does not imply a recommendation to buy or sell. Nikko AM accepts no liability whatsoever for any loss or damage of any kind arising out of the use of all or any part of this document, provided that nothing herein excludes or restricts any liability of Nikko AM under applicable regulatory rules or requirements. All information contained in this document is solely for the attention and use of the intended recipients. Any use beyond that intended by Nikko AM is strictly prohibited.
 
New Zealand: Nikko Asset Management New Zealand Limited (Company No. 606057, FSP22562) is the licensed Investment Manager of Nikko AM NZ Investment Scheme and the Nikko AM NZ Wholesale Investment Scheme and the Nikko AM KiwiSaver Scheme. This material is for the use of researchers, financial advisers and wholesale investors (in accordance with Schedule 1, Clause 3 of the Financial Markets Conduct Act 2013 in New Zealand). This material has been prepared without taking into account a potential investor’s objectives, financial situation or needs and is not intended to constitute personal financial advice, and must not be relied on as such. Recipients of this material, who are not wholesale investors, or the named client, or their duly appointed agent, should consult an Authorised Financial Adviser and the relevant Product Disclosure Statement or Fund Fact Sheet (available on our website: http://www.nikkoam.co.nz/).

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