| One month | Three months | One year | Three years (p.a) | Five years (p.a) | |
|---|---|---|---|---|---|
| Fund performance1 | -0.78 | -1.51 | 0.33 | 5.93 | 2.65 |
| Appropriate Market Index (AMI)2 | -0.43 | -0.55 | 1.40 | 6.18 | 3.21 |
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 |
|---|---|
| Housing NZ 1.534% 10/09/2035 | 2.78% |
| New Zealand Government 150536 4.25 Gb | 2.68% |
| NZ Local Govt Funding Agency 150437 2.00 GB | 2.35% |
| Udcau 2026 1 A 200832 Abs | 2.30% |
| Rabobank Nederlandnz 200231 4.40 Cb | 2.22% |
| Insurance Australia Group Ltd 150628 5.32 Cb | 2.16% |
| NZ Government 2.75% 15/04/2037 | 2.09% |
| Rabo 5.31% 05/04/2029 | 2.09% |
| Christchurch Intl Airport 060336 5.08 Cb | 2.07% |
| NZ Local Govt Funding Ag 3% 15/05/2035 | 2.07% |
Commentary
As of 30 September 2026
NZ bonds had negative returns over the September month and the quarter as yields moved meaningfully higher. The moves in rates were primarily driven from offshore with the resumption of hostilities in the Middle East and inflation concerns weighing on bond market sentiment that was already under pressure due to elevated supply and fiscal concerns. The rate moves dominated returns with mark-to-market capital loss greater than the monthly income accrual. The fund has been positioned with longer duration than benchmark, which was unhelpful - although we did add some longer maturity bonds and participate in new bond issuance at better levels during September which should support returns.
The long-duration positioning supports a higher fund yield with the curve positive in slope; i.e., investors can invest at a higher underlying rate, and credit margins are wider for longer-maturity bonds. However, when rates move higher, there is a greater mark-to-market capital loss than the benchmark.
Across sectors, NZ government bonds performed a little better than swaps. Credit margins remained stable despite a large ramp up in domestic issuance during September. Over the month and quarter NZ government bond yields moved as follows: 1-year +8bps and +35bps, 5-year +32bps and +67bps, 10-year +31bps and +69bps, and the 2054 maturity +22 bps and 60bps. The moves in swap rates were: 1-year +27bps and 66bps, 5-year +36bps and 77bps, and 10-year +32bps and 76bps.
Moves in offshore rates have dominated the direction and size of local moves with a lot now priced in, in terms of additional inflation risk and rate hike expectations. The RBNZ and local economic outcomes should remain the key influence on the front of the yield curve over the medium term. Longer maturity bonds are making range highs and remain captive to offshore, although NZ bonds have outperformed compressing in spread relative to the US. The NZ yield curve remains much steeper in positive slope than the US and Australia, and this continues to support buying longer-maturity NZ bonds. We expect the higher yield provided from carry-and-roll to support performance over the medium term.
The fund had a negative return of 0.75% for September and -1.37% for the quarter, underperforming its benchmark, the Bloomberg Credit Index, which returned -0.43% for the month and -0.55% for the quarter.
The move higher in interest rates dominated returns with the longer duration positioning unhelpful. Credit margins remained well supported even though supply has meaningfully increased over the past couple of months. At this stage demand has remained strong for new bond issuance and the move higher in yields has made nominal levels more attractive for retail investors. We participated in several new bond deals which were funded through cash and shorter maturity bonds to enhance the fund yield when rates spiked higher and added some longer maturity government bonds. Although the move higher in rates has been unhelpful the high-quality credit holdings and longer-duration positioning, combined with a steep yield curve, continue to support a higher fund yield, and we expect carry and roll to support returns over the medium term.