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 | 0.72% | 4.37% | 8.84% | 0.78% | 1.68% |
| Appropriate Market Index (AMI)2 | 0.66% | 4.87% | 11.02% | 1.49% |
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 | 4.91% |
| Westpac New Zealand Ltd 160932 6.19 Cb | 4.83% |
| Infratil Limited | 3.66% |
| Auckland International Airport Ltd 090528 5.67 Cb | 3.60% |
| Chorus Limited | 3.32% |
| Spark Finance Ltd 180931 5.45 Cb | 3.29% |
| Westpac New Zealand Ltd 140234 6.73 Cb | 3.29% |
| Kiwibank Ltd 191027 5.737 Gb | 3.29% |
| Christchurch International Airport 150431 5.44 Cb | 3.28% |
| Industrial And Commercial Bank Of China New 090429 5.784 Gb | 3.26% |
Commentary
As of 30 September 2024
The Income Fund increased by 0.72% over the month of September and 4.37% over the past quarter as the bond market performed well as the prospect of further cuts to the cash rate reduced the yield of shorter-term bonds. September saw rates on longer term bonds however, stay the same or in some cases increase after performing strongly over the past quarter. Longer term bonds were the best performing part of the fixed income sector. The NZ equity market was modestly positive over September and advanced strongly over the quarter as investors were encouraged by the Reserve Bank indicating a series of interest rate cuts were likely over the back end of 2024 and over 2025. Over the month the NZX50 (gross with imputation credits) increased 0.05% while the NZ Composite Bond Index advanced 0.63%. Cash provided a steady return of around 0.5%. The quarterly return for the bond sector was 3.89% and 6.37% for the NZX50. Markets continue to focus on the words and actions of the Reserve Bank of NZ and influential central banks such as the US Federal Reserve for signs of when and by how much cash rates will be cut. The RBNZ did surprise markets by delivering a 0.25% cut to the Official Cash Rate at their August meeting and projected further cuts in the OCR until it reaches 3.0% by late 2026 or early 2027. The US Federal Reserve also started their cutting cycle by lowering their cash benchmark by 0.5% at their September meeting to help defend US economic activity and to help bolster the labour market. US investors are also looking for another large interest rate cut in November however the size of future rate cuts will be dependent upon the future direction of data releases. Like in the US the market is anticipating further cuts to the OCR possibly as early as on 9 October and a number of economists forecasting an Official Cash Rate of 4.25% by the end of 2024. The prospect of lower interest rates helped propel equity markets higher and bond rates lower over the past quarter. How far and how fast the rate cuts would occur was the dominant investment theme over the past quarter. Interest rates will continue to be on the minds of investors however the escalation of middle east tensions and the potential impact on oil prices is of rising concern. If cash rates move significantly lower over the next year or two, we would expect bond rates to follow but not to the same extent. We are also aware that large falls in cash rates are already priced into markets so any disappointment could see some retracement in prices/yields however if this does occur it could represent a good buying opportunity. The interest rate sensitive property sector had a strong boost with Stride and Investore advancing by more than 14% over the quarter. Skellerup, Chorus Ebos and Infratil also performed strongly. Spark and Contact tailed the field. 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.