Single Sector Fund

Nikko AM Global Bond Fund

About the fund

The fund invests in a selection of bonds and other  fixed income instruments issued by companies and governments from around the world, covering a wide range of regions and sectors. This fund provides exposure to fixed income products outside of NZ and currency exposure is hedged to remove the impact of changes in value of the NZ dollar.

Risk Indicator (volatility)

1
2
3 Medium
4
5
6
7

Target Asset Allocation

Income 100.00%

Commentary

As of 31 December 2023

Market Highlights

  • Faster rate cut projections and US Federal Reserve (Fed) Chair Powell entertaining the idea of policy easing led to a rally in rates and bolstered risk assets over December.    
  • Major central banks kept policy rates on hold in December.
  • With the inflation surge in the rear-view, central banks are now balancing the challenge of inflation persisting slightly above target with the risk of weaker growth.

The fund returned 6.53% (gross of fees) for the quarter, which was 86 basis points (bps) better than the benchmark return of 5.67%.

The portfolio outperformed its benchmark over the review period. This was driven by our Cross-sector and Country strategies, respectively. Meanwhile, our Duration strategy detracted from excess returns.

Positive contributions from our Cross-sector strategy were driven by our credit hedge, whereby we balance our sector exposures with an overweight allocation to US Treasuries. Our overweight beta to collateralized loan obligations (CLO) and investment grade (IG) credit also contributed. Fixed income assets rallied into year-end for several reasons including downside surprises in global inflation measures suggesting central banks had reached the end of their respective hiking cycles, soft landing optimism and dovish central bank rhetoric. The 10-year US Treasury yield fell below 4% for the first time since August and in all, retreated by around 100bps from October highs. Elsewhere, US IG spreads tightened by 20bps over the quarter while AAA-rated CLO spreads narrowed by 16bps.

Our Country strategy also contributed to excess returns. This was primarily driven by our cross-market overweight Sweden versus Australia rates position. A dovish Riksbank November meeting (rates were kept on hold) and market anticipation that Swedish rates had reached their peak supported our position. The underweight component of our position was supported by the Reserve Bank of Australia’s (RBA) 25bps rate hike at its November meeting and hawkish commentary around the persistence of inflation and robust economy.

Our Duration strategy underperformed. This was driven by our underweight to Japanese rates. First, Japanese government bonds tracked the global rates rally into the latter part of the quarter on prospects of central bank easing. Second, the Bank of Japan (BoJ) kept ultra-easy policy parameters unchanged at its December meeting; both challenging our position.

Performance

Nikko AM Investment Scheme
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Performance

at 31 December 2023
One month Three months One year Three years (p.a) Five years (p.a)
Fund performance1 3.31% 6.86% 7.77% -3.13% 1.42%
Appropriate Market Index (AMI)2 3.12% 5.67% 6.59% -2.42% 1.03%
  1. Returns are before tax and after the deduction of fees and expenses and including tax credits (if any).
  2. AMI: Bloomberg Barclays Global Aggregate Index hedged into NZD.

5 year cumulative performance $10,000 invested

Top 10 Holdings

Security Name Percentage
Japan Government 150124 0.00 Cb 6.84%
Japan Government 190224 0.00 Gb 5.34%
Japan Government 130224 0.00 Gb 2.47%
Japan Government 200630 0.10 Gb 2.01%
Japan Government 010125 0.005 Gb 1.83%
Japan Government 200931 0.10 Gb 1.69%
Japan Government 010724 0.005 Gb 1.63%
Gnma Ii 3O Year Single Family 201052 4.50 Mbs Pool Ma8347 1.57%
Kfw 101028 3.125 Gb 1.41%
European Investment Bank 151128 3.00 Gb 1.40%
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