Diversified Funds
For an estimate of the quarterly distribution for your investment click:
On this page:
This fund aims to provide a higher return than cash and provide regular income through distributions while maintaining capital value. The fund does this by investing in a combination of bonds and income-generating shares.
The fund holds bonds and shares across companies that have been carefully selected based on their ability to provide reliable, sustainable income. Unlike a term deposit, the value of your investment can fall, so the amount you receive when you redeem could be less than the amount you invested. However, if the value increases, the amount you redeem could be higher than the initial amount you invested. Our Income Fund offers a range of new benefits, including a 3.5% p.a defined distribution rate, paid out quarterly.
Find out more about the Nikko AM Income Fund
Risk Indicator (volatility)
Target Asset Allocation
This number indicates the relative 'risk' level of this fund based on the types of assets it is invested in, ranging from level 1 (least risky) to 7 (most risky).
| Risk category | Description of volatility |
| 1 | Very low |
| 2 | Low |
| 3 | Medium |
| 4 | Medium to High |
| 5 | High |
| 6 | Very high |
| 7 | Extremely high |
The risk indicators are calculated using returns of the funds, the returns of the fund’s market index or a combination of both, for the previous five years. Index returns or a mix are used if the fund has existed for less than five years. All Managers are required to use the same methodology so you can compare the risk of different funds if you are researching more than one manager.
| One month | Three months | One year | Three years (p.a) | Five years (p.a) | |
|---|---|---|---|---|---|
| Fund performance1 | 0.89% | -0.43% | 4.02% | -0.14% | 0.69% |
| Appropriate Market Index (AMI)2 | 0.16% | -0.34% | 4.02% | 0.21% |
AMI (appropriate market index) is a theoretical portfolio with similar underlying assets as the fund. This allows investors to see a comparison of how the value of those assets have changed in the market relative to the fund.
| Security Name | Percentage |
|---|---|
| Powerco Ltd 070330 6.397 Cb | 5.29% |
| Westpac New Zealand Ltd 160932 6.19 Cb | 5.09% |
| Infratil Limited | 4.03% |
| Auckland International Airport Ltd 090528 5.67 Cb | 3.78% |
| Westpac New Zealand Ltd 140234 6.73 Cb | 3.51% |
| Bank Of New Zealand | 3.47% |
| Kiwibank Ltd 191027 5.737 Gb | 3.46% |
| Spark Finance Ltd 180931 5.45 Cb | 3.42% |
| Christchurch International Airport 150431 5.44 Cb | 3.42% |
| Industrial And Commercial Bank Of China New 090429 5.784 Gb | 3.40% |
Commentary
As of 30 June 2024
Market Highlights
The Income Fund gained 0.89% over June, however fell by around 0.5% over the quarter as the equity market struggled to gain forward momentum. Over the June quarter the NZX50 (gross with imputation credits) fell 3.2% while the NZ Composite Bond Index advanced 0.8%. Cash was the best performing sector of the local market, increasing by 1.4% over the past three months.
Market focus continues to be on the words and actions of the Reserve Bank of NZ and other central banks. The NZ economy feels weak and inflation pressures are falling, however perhaps not as fast as the RBNZ would like. June quarter 2023 and the September quarter CPI prints were 1.1% and 1.8% respectively. These high quarterly numbers are likely to be replaced by much lower ones as 2024 progresses, pushing the annual CPI inflation rate back into the 1% to 3% band with the next stop being close to the RBNZ’s desired 2% level by late 2025 or early 2026.
With a softening labour market and weak economic growth, evidenced by GDP per capita falling in the last six quarters, it is only a matter of time before cash rates are cut. The RBNZ is currently sticking to its projections of the first cut occurring in mid-2025 however a strong case is building for rate cuts to start as early as at the 27 November 2024 Monetary Policy Statement. In our view if they wait much longer than this the economy will need more stimulus via deeper rate cuts compared to requiring more modest rate cuts if cuts started earlier. In either case we believe the 2% inflation target will be met but earlier cuts will likely mean less damage to economic output and jobs occurring.
If cash rates move significantly lower over the next year or two, we would expect bond rates to follow and deliver strong returns to the portfolio. In the short term the direction of the NZ bond and equity markets are likely to be influenced by trends and sentiments in the large offshore markets.
The S&P/NZX 50 Gross (with imputation credits) Index fell by 3.2% over the June quarter and down 0.45% over the year-to-date. There continued to be a wide variance in stock returns over the month and quarter with energy companies such as Meridian, Contact and Mercury benefiting from the renegotiation of the Tiwai point smelter contract on favorable terms. Over the month Infratil, Skellerup and Scales had strong price performance however Heartland share price has continued to slide post its capital raise.
The bond sector as measured by the Bloomberg NZ Bond Composite Index increased 0.80% and is up a modest 1.06% so far in 2024. Cash and short-term bonds held their value as the Official Cash Rate remained unchanged, however longer-term bonds have performed well recently as signs that inflation globally is falling increase. It is only a matter of when, not if, more central banks start their rate cutting cycle.
We continue to believe investors should seek income from a diverse range of sources. Looking ahead over the medium term a lower rate environment should be supportive of both bond and equity returns. The Income Fund remains invested in a range of NZ companies listed on the NZX that pay a consistent level of dividends or who have the likelihood of doing so in the future. In addition to dividend income, we expect over time the industry sectors and business models adopted by these companies should be rewarded by a steady or rising share price.