| One month | Three months | One year | Three years (p.a) | Five years (p.a) | |
|---|---|---|---|---|---|
| Fund performance1 | 0.18 | 0.46 | 2.23 | 5.87 | 2.71 |
| Appropriate Market Index (AMI)2 | 0.34 | 0.80 | 2.80 | 6.10 | 3.19 |
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 |
|---|---|
| Westpac New Zealand Ltd 160227 3.696 Cb | 3.15% |
| Housing NZ 1.534% 10/09/2035 | 2.86% |
| New Zealand Government 150536 4.25 Gb | 2.72% |
| Bank Of New Zealand Cash at Call | 2.49% |
| NZ Local Govt Funding Agency 150437 2.00 GB | 2.40% |
| Bank Of New Zealand 010928 5.872 Cb | 2.22% |
| Insurance Australia Group Ltd 150628 5.32 Cb | 2.18% |
| Rabobank Nederlandnz 200231 4.40 Cb | 2.17% |
| Udcau 2026 1 A 200832 Abs | 2.16% |
| Christchurch Intl Airport 060336 5.08 Cb | 2.11% |
Commentary
As of 31 August 2026
NZ bonds had positive but muted returns as interest rates finished modestly higher over the month. In terms of return drivers, the move higher in interest rates dominated the benefit from the higher monthly income accrual. The longduration 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 longermaturity bonds. However, when rates move higher, there is a greater mark-to-market capital loss than the benchmark. Across sectors, NZ government bonds and swaps had similar performance. Credit margins remained stable given the ongoing shortage of bond issuance. Over the month, NZ government bond yields moved as follows: 1-year +2 bps, 5- year +3 bps, 10-year +6 bps, and the 2054 maturity +11 bps. The moves in swap rates were: 1-year +4 bps, 5-year +4 bps, and 10-year +6 bps. The RBNZ and local economic outcomes remain the key influence on the front of the yield curve.
The RBNZ is expected to increase the cash rate to around neutral (3- 3.5%), although there may be a pause along the way. Longer maturity bonds have been largely in a holding pattern closer to the top of their recent range, but they remain more influenced by offshore direction.
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. Additionally, NZ credit continues to perform well, underpinned by limited supply relative to demand, and there are several NZ bond maturities in the second half of this year that will need to be reinvested in bonds.
The fund had a positive return of 0.24% in August, marginally behind its benchmark, the Bloomberg Credit Index, which returned 0.34%.
The move higher in interest rates was the dominant effect on returns over the month. The longer duration position was unhelpful as interest rates moved modestly higher. Credit holdings continue to add value through higher yield with margins stable. We continue to participate in new bond deals and although credit margins are narrower there doesn’t appear a catalyst for a meaningful expansion in margins. 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.