Single Sector Fund

Nikko AM NZ Cash Fund

About the fund

This fund invests in a  selection of NZ dollar denominated cash investments and short-term  bonds that aim to protect value while at the same time providing a higher return than bank deposits.

Risk Indicator (volatility)

1 Very low
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7

Target Asset Allocation

Cash 100.00%

Commentary

As of 31 May 2022

Market Highlights

  • The Reserve Bank delivered a second consecutive 0.50% OCR hike taking the cash rate to 2%.
  • Rhetoric was decidedly hawkish with the RB stating it was “resolute” in its commitment to “confidently” bring down inflation and that it would “briskly” lift the OCR until it was “convinced” inflation was constrained.
  • An updated OCR track was released implying roughly a 3.5% OCR by year end and a peak OCR of 3.95%. This suggests two of the remaining four meetings of 2022 will see 0.50% rises.







The strategy outperformed in May returning 0.16% versus its 90-day bank bill index which returned 0.13%. The fund has been implementing a barbel investment strategy, with short positions concentrated around the upcoming Reserve Bank meeting dates complemented with some longer positions to take advantage of higher rates offered for tenor. Going into the May RB meeting date the fund had over one third of its securities due to mature inside one month including circa 6.5% in cash. These positions have or will shortly be reinvested at higher prevailing rates. At the same time the fund’s longer positions have added value primarily through the accrual of their yield advantage. As mentioned in our market commentary, current pricing is such that investors are well compensated for taking bank bill positions out towards 1-year in term. To put some numbers around this, at our time of writing an investment of 1-year in term would offer a return gain of some 0.32% over a strategy of sitting in call cash should the RB implement a hiking profile consistent with its forecast OCR track. (This being two further 0.50% increases followed by three 0.25% increases). Credit spreads further enhance this prospective advantage to the tune of 0.20-0.40%. We continue to remain comfortable with our strategy of taking short positions around upcoming RB meeting dates combined with longer positions when we see fair value versus our expected OCR track.

Performance

Nikko AM Investment Scheme
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Performance

at 31 May 2022
One month Three months One year Three years (p.a) Five years (p.a)
Fund performance1 0.14% 0.26% 0.77% 1.19% 1.72%
Appropriate Market Index (AMI)2 0.13% 0.33% 0.76% 0.77% 1.24%
  1. Returns are before tax and after the deduction of fees and expenses and including tax credits (if any).
  2. AMI: Bloomberg NZBond Bank Bill Index.

5 year cumulative performance $10,000 invested

Top 10 Holdings

Security Name Percentage
HSBC Bank New Zealand 111124 Frn 5.24%
Rabobk Nfix3fra + 38 28/06/2024 4.83%
Bank Of China 4.33%
Bank Of New Zealand 180324 Frn 4.23%
Industrial And Commercial Bank Of China Nzd 260525 Frn 3.80%
Bank Of New Zealand Cash at Call 3.03%
Inland Revenue Deposit 210622 Rcd 2.57%
Mufg Bank Ltd Auckland Branch 051124 Frn 2.52%
New Zealand Tax Trading Co 220622 Rcd 2.42%
Toyota Finance New Zealand Ltd 230525 Frn 2.11%

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