Single Sector Fund

Nikko AM NZ Bond Fund

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
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3 Medium
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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 31 December 2023

Market Highlights

  • The final quarter of 2023 was very strong for bond returns.
  • Yields kept falling through November and December as the market aggressively priced interest rate cuts in 2024.
  • NZ credit continues to help returns with a higher yield and stable margins supported by supply/demand dynamics.

The fund had a very strong quarter both absolute and in relative terms versus the Bloomberg NZ Composite benchmark. October was unhelpful as yields went higher but November and December produced very strong returns as interest rates kept falling. The move lower in interest rates was the main driver of both absolute and relative returns. The fund has incrementally moved to a moderate long duration position (approximately 1-year long) which was most helpful as interest rates moved a lot lower. We trimmed the long duration position late December.

Government bonds and swap had similar performances with the move lower in rates consistent along the yield curve for both sectors. Credit holdings have helped in terms of providing a higher yield while margins have been relatively stable. In terms of sectors, we continue to favour quality credit in new issuance.

We don’t necessarily expect rate cuts as early as the market is pricing but given the balance of risk, we are happy to lock in higher rates for longer when this makes sense. Again, we will remain patient and look to add value in terms of duration positioning on opportunities within the range.

Performance

Nikko AM Investment Scheme
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Performance

at 31 December 2023
One month Three months One year Three years (p.a) Five years (p.a)
Fund performance1 3.30% 6.85% 7.47% -2.13% 1.10%
Appropriate Market Index (AMI)2 2.84% 6.01% 6.18% -2.39% 0.44%
  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 150534 4.25 Gb 9.62%
NZ Government 2.75% 15/04/2037 8.96%
NZ Govt Inflation Index Bond 20/09/25 6.33%
Housing NZ 1.534% 10/09/2035 3.85%
NZ Government 150541 1.75 GB 3.20%
Kommunalbanken AS 1.25% 02/07/2030 3.04%
Bank Of New Zealand 010928 0.00 Cb 2.50%
NZGB 0.5% 15/05/2026 2.41%
NZ Local Govt Funding Agency 150437 2.00 GB 2.27%
Kiwibank Ltd 191027 5.737 Gb 2.04%
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