Single Sector Fund

Nikko AM NZ Bond Fund

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About the fund

The fund invests in a broad selection of NZ dollar denominated bonds issued by Governments, Government entities, banks and companies, providing investors with a regular income. The fund may experience modest ups and downs in value. 

Risk Indicator (volatility)

1
2
3
4 Medium to High
5
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7

Target Asset Allocation

Income 100.00%

Find out more about the NZ bond fund from Ian Bellow

Ian is a Fixed Income Manager here at Nikko AM. In this video, Ian talks about the NZ Bond Fund and describes what this fund aims to achieve in terms of returns. Ian also explains what sets this fund apart from the rest and why you should consider the NZ Bond Fund for your next investment.

Commentary

As of 30 September 2024

Market Overview
  • The swap curve bull steepened with short term rates falling by more than long term rates in anticipation of rapid and deep cuts from the RBNZ.
  • Government bonds underperformed swap with the governments ongoing large and possibly increasing issuance program continuing to place pressure on yields to attract investors.
  • The Federal Reserve opened its easing cycle with an aggressive 50bps cut, markets viewed this as increasing the probability the RBNZ may also take a more aggressive stance to easing.
Fund Commentary
The fund returned 4.43% over the quarter, outperforming its benchmark the Bloomberg Composite which returned 3.89% by 0.54%. Performance in the September quarter was primarily driven by a dovish shift by the RBNZ and other global central banks. This pivot from a higher for longer inflation fighting stance to one of ongoing easing resulted in a strong rally with interest rates down across the curve. Over the quarter swap rates were down: 137bps at 2-year, 89bps at 5-year and 60bps at 10-Year. Similarly NZGBs were down 105bps at 2-year, 76bps at 5-year and 42bps at 10-year. The fund has held a long duration position in the range of 1.3 to 1.4 years longer than benchmark over the quarter. This strongly contributed to its outperformance. Of additional note in the above interest rate numbers is that swap significantly outperformed governments – this also strongly contributed to performance as the fund holds a large underweight to the government sector. Whilst over the prior quarter duration was a strong driver of performance, as we move forward we expect smaller gains from this factor. Pleasingly as the RBNZ delivers on its expected easing program, we expect the return of a normal upward sloping yield curve which will provide the fund with opportunity to execute a carry and roll strategy which should positively contribute to future returns.

Performance

Nikko AM Investment Scheme
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Performance

at 30 September 2024
One month Three months One year Three years (p.a) Five years (p.a)
Fund performance1 0.64% 4.30% 12.66% 1.11% 0.66%
Appropriate Market Index (AMI)2 0.63% 3.89% 11.29% 0.58% 0.06%
  1. Returns are before tax and after the deduction of fees and expenses and including tax credits (if any).
  2. AMI: Bloomberg NZBond Composite 0+ year Index.

5 year cumulative performance $10,000 invested

Top 10 Holdings

Security Name Percentage
NZ Government 2.75% 15/04/2037 9.69%
NZ Government 150534 4.25 Gb 9.13%
NZ Government 150541 1.75 GB 6.87%
New Zealand Government 150535 4.50 Gb 4.09%
Housing NZ 1.534% 10/09/2035 3.39%
NZ Government Bond 2% 15/05/2032 3.36%
Rabo 5.31% 05/04/2029 3.03%
Kommunalbanken AS 1.25% 02/07/2030 2.75%
Westpac New Zealand Ltd 160932 6.19 Cb 1.89%
Westpac New Zealand Ltd 240929 4.34 Cb 1.84%
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