Diversified Funds
Closed to new investors
On this page:
This fund aims to provide a higher return than cash and provide regular income through distributions while maintaining capital value. The fund does this by investing in a combination of bonds and income-generating shares.
The fund holds bonds and shares across companies that have been carefully selected based on their ability to provide reliable, sustainable income. Unlike a term deposit, the value of your investment can fall, so the amount you receive when you redeem could be less than the amount you invested. However, if the value increases, the amount you redeem could be higher than the initial amount you invested. Our Income Fund offers a range of new benefits, including a 6.5% p.a defined distribution rate, paid out quarterly.
Risk Indicator (volatility)
Target Asset Allocation
This number indicates the relative 'risk' level of this fund based on the types of assets it is invested in, ranging from level 1 (least risky) to 7 (most risky).
| Risk category | Description of volatility |
| 1 | Very low |
| 2 | Low |
| 3 | Medium |
| 4 | Medium to High |
| 5 | High |
| 6 | Very high |
| 7 | Extremely high |
The risk indicators are calculated using returns of the funds, the returns of the fund’s market index or a combination of both, for the previous five years. Index returns or a mix are used if the fund has existed for less than five years. All Managers are required to use the same methodology so you can compare the risk of different funds if you are researching more than one manager.
| One month | Three months | One year | Three years (p.a) | Five years (p.a) | |
|---|---|---|---|---|---|
| Fund performance1 | 0.32% | 1.84% | 6.37% | 1.55% | 2.01% |
| Appropriate Market Index (AMI)2 | 0.83% | 2.78% | 9.12% | 2.90% |
AMI (appropriate market index) is a theoretical portfolio with similar underlying assets as the fund. This allows investors to see a comparison of how the value of those assets have changed in the market relative to the fund.
| Security Name | Percentage |
|---|---|
| Fisher & Paykel Healthcare | 4.69% |
| NZ Government 150534 4.25 Gb | 3.60% |
| NZ Government 2.75% 15/04/2037 | 3.47% |
| Infratil Limited | 3.09% |
| Auckland International Airport Ltd | 3.01% |
| NZ Government 150541 1.75 GB | 2.82% |
| Contact Energy Limited | 2.25% |
| Housing NZ 1.534% 10/09/2035 | 2.16% |
| New Zealand Government 150535 4.50 Gb | 1.84% |
| Rabo 5.31% 05/04/2029 | 1.81% |
Commentary
As of 31 December 2024
The Income Fund increased by 0.32% over December and advanced 1.84% over the last quarter of 2024. The bond and equity markets added positively to returns with the NZ equity market posting healthy gains over the past three months. Bonds, as measured by the Bloomberg Composite Bond Index, advanced a modest 0.67% over the same period.
Markets were propelled higher primarily by the Reserve Bank of NZ delivering two 0.5% cuts to the Official Cash Rate. The first occurred on 9 October followed by another on 27 November, these cuts quickly followed the first rate cut of 0.25% on 14 August. In addition, the RBNZ indicated they will continue to cut the cash rate over 2025.
The OCR finished the year at 4.25% with a further 0.5% cut on 19 February 2025 is likely based on current market pricing.
The quick pace of rate cuts so far and the strong probability of more to come is a result of inflation falling back into the RBNZ’s 1-3% comfort zone and the surprisingly poor economic growth performance NZ recorded over the past year. In our view, larger interest rate cuts are required to stimulate the economy. Lower rates will help rebuild consumer and business confidence and encourage more spending and investment which in turn will help support jobs and tax revenue. The government’s finances aren’t in great shape and policies to enhance growth will make it easier for it to pay its bills without the need to continue to borrow billions of dollars a year to finance government overspending.
The NZ equity market consolidated its strong recent performance. The NZ equity market as measured by the NZX50 (gross with imputation credits) increased 0.40% over the month and 5.62% over the December quarter as the prospect of lower interest rates continued to increase the appeal of New Zealand listed companies. The NZ Composite Bond Index also had a good month advancing 0.61% as bond yields fell due to weak economic performance and the prospect of only slow improvement over the year ahead. Short to mid-term bonds had the largest fall in yields as the prospect of lower cash rates made these bonds look attractive to investors keen to lock into relatively higher yielding investments.
The S&P/NZX 50 Gross (with imputation credits) Index increased over the December quarter as falling cash rates continued to encourage investors to look for buying opportunities. Skellerup, Scales and Contact were some of the better performers over the quarter with Spark continuing to be out of favour.
Over December individual holdings of bond and equity securities were sold, and the proceeds were used to purchase units in the Nikko Wholesale NZ Bond and NZ Equity funds. The primary reason for this was to increase the liquidity of the assets of the Income Fund and provide a more diverse asset base while maintaining market exposure in preparation for the fund closure.
With cash rates forecast to fall we continue to believe investors should seek income from a diverse range of sources. Looking ahead over the medium term a lower rate environment should be supportive for both bond and equity returns. The Income Fund remains invested in a range of NZ companies listed on the NZX that pay a consistent level of dividends or who have the likelihood of doing so in the future. In addition to dividend income, we expect over time the industry sectors and business models adopted by these companies should be rewarded by a steady or rising share price.