Nikko AM NZ Bond Funds - Changes to Mandates | Nov 23

From 1 December 2023, we are making changes to the mandates of following funds:

-    Nikko AM Wholesale NZ Bond Fund/Nikko AM NZ Bond Fund
-    Nikko AM Wholesale NZ Corporate Bond Bund/Nikko AM NZ Corporate Bond Fund/Nikko AM KiwiSaver Scheme NZ Corporate Bond Fund

Please see below for a summary of the changes:

-    Allow the NZ Bond Fund to invest into NZ issuers/issues in a foreign currency.
o    This will align with the NZ Corporate Bond Fund’s current ability to do so.
o    Maximum exposure of NZ issuers/issues in foreign currency for each fund will be capped at 30%.
-    Allow the NZ Bond Fund and NZ Corporate Bond Fund to invest into Australian companies issuing in AUD.
o    This will be limited to Australian companies who are deemed authorised-deposit-taking-institutions under APRA, who have a subsidiary in New Zealand.
    A subsidiary will be defined as an Australian company with >50% ownership in a New Zealand issuer
o    The maximum exposure in each fund will be 30%.
-    The credit quality of both the funds will not be impacted by the proposed changes and both funds remain limited to Investment Grade issues only. 
-    The total fund exposure to bonds issued in foreign currency is limited to 30% combined (applies to NZ issuers in foreign currencies or Australian issuers in AUD)
-    All foreign currency exposures are to be hedged to the NZD within an operational range of 95% to 105%.

Please see below for a table depicting the proposed changes:
 

We are making these changes for several reasons:
1.    At times, NZ Companies issuing in offshore markets will have wider credit margins compared to similar NZ issues, providing opportunities to take advantage of any pricing differentials.
2.    Investing in the parent company of a NZ subsidiary (e.g., CommBank/ASB) may present opportunities for enhanced credit quality and often better pricing for similar risks. 
3.    Proposed changes to the RBNZ’s bank liquidity rules may result in NZ registered banks holding a much narrower range of bond issuers in their books. This means a significant number of issuers (including bank issuers) will likely increase the volume of debt issued in offshore, rather than domestic debt capital markets. 

In summary, these changes are intended to increase the potential returns to investors without increasing the risk profile of the portfolios. The changes also provide the ability to invest into a subset of Australian/AUD issues which may present advantages over NZ issues and increased diversification within the funds. 

The focus of the NZ Fixed Income team will remain on NZ issuers and issues and therefore the NZ Bond Fund and NZ Corporate Bond Funds will remain predominantly concentrated upon New Zealand. 

What do you need to do?
You do not need to do anything regarding these changes. 

Next Steps
We will be implementing these changes on 1 December. If you have any questions please contact Sam Bryden, Sam Belton or Kady Buchanan who can assist you. 
                       
Sam Bryden                  Sam Belton                Kady Buchanan
Head of Distribution              Senior Relationship Manager    Senior Relationship Manager    






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New Zealand: Nikko Asset Management New Zealand Limited (Company No. 606057, FSP22562) is the licensed Investment Manager of Nikko AM NZ Investment Scheme and the Nikko AM NZ Wholesale Investment Scheme and the Nikko AM KiwiSaver Scheme. This material is for the use of researchers, financial advisers and wholesale investors (in accordance with Schedule 1, Clause 3 of the Financial Markets Conduct Act 2013 in New Zealand). This material has been prepared without taking into account a potential investor’s objectives, financial situation or needs and is not intended to constitute personal financial advice, and must not be relied on as such. Recipients of this material, who are not wholesale investors, or the named client, or their duly appointed agent, should consult an Authorised Financial Adviser and the relevant Product Disclosure Statement or Fund Fact Sheet (available on our website: http://www.nikkoam.co.nz/).