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 29 February 2024

Market Highlights

  • Ongoing strength in the US economy, as reflected by a resilient labour market and signals from January PMI surveys, alongside improving sentiment across Europe, boosted risk assets over February.
  • Sovereign bond yields fluctuated as financial markets pulled back expectations for the timing of central bank rate cuts, with government bonds exiting February 1.9% lower.
  • We continue to expect central banks to cut policy rates this year – albeit later than initially expected.

The portfolio underperformed its benchmark over the month. This was driven by our Duration and Government/Swaps selection strategies. By contrast, our Corporate selection strategy contributed to excess returns.
Detraction of our Duration strategy was driven by our forward steepener and directional underweight positions on US rates. Upside surprises in labour market and inflation data, as well as markets pushing back expectations for the Fed cutting cycle, led to flattening of the US yield curve and a spike in yields across the curve. Our position on the 7-year node of the US yield curve, where we were overweight, particularly underperformed.

Our Government/Swaps selection strategy also underperformed. This was driven by our US and European steepener positions. In Europe, the number of interest rate cuts priced to end-2024 also fell, front-end yields rose, and longer-maturity bonds outperformed shorter-dated counterparts. This saw the European yield curve flatten, challenging our position. Meanwhile, our Corporate selection strategy contributed to excess returns. This was driven by our preference to be overweight the short-to-intermediate part of the IG corporate curve. Over the month, 1-3 and 3-5 year portions of the IG curve tightened by 6bps and 8bps, respectively. Our down-in-quality bias among IG corporates also contributed.

Performance

Nikko AM Investment Scheme
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Performance

at 29 February 2024
One month Three months One year Three years (p.a) Five years (p.a)
Fund performance1 -0.65% 1.77% 5.36% -2.40% 0.80%
Appropriate Market Index (AMI)2 -0.70% 2.16% 5.12% -2.04% 0.64%
  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 Of 070524 0.00 Gb 2.72%
Japan Government 200630 0.10 Gb 1.92%
Japan Government 010125 0.005 Gb 1.76%
Japan Government 200931 0.10 Gb 1.62%
Japan Government 010724 0.005 Gb 1.56%
Future Margins-USD 1.55%
Export Development Canada 180129 2.625 Gb 1.55%
Gnma Ii 3O Year Single Family 201052 4.50 Mbs Pool Ma8347 1.55%
Fnma Fncl 250853 7.00 Tba 1.49%
Cx003113 Ccp Long Sell Cds Usd 200628 Rfxd1pflticecdcdxig540 1.44%
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