Diversified Funds
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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 | -1.03% | 1.34% | 4.89% | 0.47% | 0.59% |
| Appropriate Market Index (AMI)2 | -0.40% | 2.48% | 4.19% | 0.22% |
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 |
|---|---|
| Auckland International Airport Ltd 090528 5.67 Cb | 7.11% |
| Kiwibank Ltd 191027 5.737 Gb | 5.18% |
| Powerco Ltd 070330 6.397 Cb | 4.79% |
| Westpac New Zealand Ltd 160932 6.19 Cb | 4.75% |
| TR Group 4.533% 07/03/2024 | 4.23% |
| Westpac New Zealand Ltd 140234 6.73 Cb | 3.21% |
| Bank Of New Zealand 010928 0.00 Cb | 3.20% |
| Works Finance Nz Ltd Pref Share | 3.15% |
| Bank Of New Zealand | 3.15% |
| Chorus Limited | 3.13% |
Commentary
As of 29 February 2024
Market Highlights
The Income Fund fell over February. It has been a tough start to the year for the New Zealand bond and equity markets with both markets lower than the close of 2023. After strong equity and bond market performance over the final months of last year, perhaps a period of consolidation was required to reflect upon what’s to come over the year ahead.
Central Bank activity, or lack of it, has been top of mind for many investors. Central Banks pushing back on market expectations of near-term rate cuts has been a global theme. Investors seem to have abandoned the idea of late last year that the US Federal Reserve would cut rates much more aggressively than the Fed’s own projections.
Equally the Reserve Bank (RB) of NZ has been pushing back on market expectations of a quick pivot to start rate cuts, however the RB has acknowledged the economy is weaker than they previously thought and there has been progress on inflation, although not quickly enough. The RB gave a clear message that it is holding the Official Cash Rate at 5.5% for some time. The RB’s projections show some rate reductions can start next year with the OCR at 3.5% by the end of 2026, as always, the projections are dependent upon data points continuing in the right direction to deliver sustainably lower inflation.
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.
The S&P/NZX 50 Gross (with imputation credits) Index fell 1.1% over February. There was a wide variance in stock returns with Meridian being the highest and Heartland Group trailing the field. The bond sector as measured by the Bloomberg NZ Bond Composite Index fell 0.24% with longer-term bonds providing the weakest returns. Cash and short-term bonds were the best performing parts of the fixed income market as they held their value as the Official Cash Rate remained unchanged.
Longer-term interest rates continued to follow trends in international markets. NZ 10-year rates followed US Treasury yields higher as like many other central banks, the US Federal Reserve seems to be in no rush to reduce rates. They noted in a recent statement that it does not expect it will be appropriate to reduce rates until it has gained greater confidence that inflation is moving toward 2%. The Fed is unlikely to reach that level of confidence by the time of their March meeting. Even though US inflation has fallen dramatically Governor Powell is of the opinion more data confirming the sustainability of the downward move is required.
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 for 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.