Single Sector Fund

Nikko AM NZ Corporate Bond Fund

About the fund

The fund invests in a  selection of NZ dollar denominated bonds issued by 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 Corporate Bond Fund from Fergus McDonald

Fergus is the head of Bonds and Currency at Nikko AM. In this video, he explains what an average day in his job looks like, what he's trying to achieve with this portfolio, and what he see's as a good investment. Fergus also talks us through the investment process and outlines the main reasons why you should consider the Corporate 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 final quarter for 2023 and outperformed the Bloomberg NZ Corporate Bond benchmark. The month of October was unhelpful as yields went higher but was followed by very strong returns in November and December as yields fell. The large move lower in interest rates was the main driver of absolute returns and relative returns. The fund had a moderate long duration position (peaking at approx. 1.4 years long). We did trim 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. We prefer quality credit which is higher yielding than governments and currently has more supportive demand /supply dynamics too. 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 2.62% 5.56% 7.75% -0.59% 1.95%
Appropriate Market Index (AMI)2 2.04% 4.64% 7.59% 0.04% 2.05%
  1. Returns are before tax and after the deduction of fees and expenses and including tax credits (if any).
  2. AMI: Bloomberg NZBond Credit 0+ year Index.

5 year cumulative performance $10,000 invested

Top 10 Holdings

Security Name Percentage
NZ Government 2.75% 15/04/2037 5.01%
Housing NZ 1.534% 10/09/2035 3.98%
Chorus Ltd 4.35% 06/12/2028 3.24%
Insurance Australia Group Ltd 150628 5.32 Cb 3.16%
NZLGFA 3% 15/05/2035 3.11%
Housing NZ 3.42% 18/10/2028 2.88%
Westpac New Zealand Ltd 160932 6.19 Cb 2.63%
ASB Bank Ltd 040526 1.646 Cb 2.57%
Westpac New Zealand Ltd 140234 6.73 Cb 2.31%
Air New Zealand Ltd Sydney Branch 250529 6.50 Cb 2.29%
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