Strategies & Performance

Income Strategy

Insights

KiwiSaver Income Strategy Insights Chart

A strategic reinvestment

Wellington Management is a Boston-based investment manager operating 13 offices worldwide and managing around US$1.3 trillion on behalf of clients. Its founder, Walter L. Morgan, established the United States’ first balanced mutual fund in 1928, naming it after the Duke of Wellington, the British general who defeated Napoleon.

We have had a relationship with Wellington for around 22 years, and have invested in a number of their funds. In this Strategy we have until recently had a holding in Wellington’s US$3 billion Global Credit Plus Portfolio, a well-diversified fund with exposure to a broad range of investment-grade securities.

The yield from this investment has been attractive and we have achieved good returns. However, its focus has been on long-dated bonds. We believe the coming rising interest rate environment will provide more attractive opportunities elsewhere, and have redeemed our investment.

Our view is that a more bespoke portfolio is now appropriate, concentrating on securities whose yields are higher than the fundamentals of the issuing companies would justify – offering both a good running yield for the Strategy and the prospect of capital returns.

In particular, we are looking to reinvest in specific bonds in the financials sector, which will benefit from rising global interest rates.

We continue to see Wellington Management as an excellent manager. Our relationship with them is long-term and we are likely to invest with them again in the future..

NZ Funds is an active investment manager. Accordingly, any securities discussed above may or may not be held by the Strategy at any given point in time.
* Source: Bloomberg US Investment Grade Bond Index.

Performance

Performance since inception (31 October 2010) to 28 February 2017
KiwiSaver Income Strategy Chart KiwiSaver Income Strategy Performance Table

NZ Funds KiwiSaver Scheme Income Strategy

  • Pre tax returns are stated after Strategy fees and expenses, but before any advisory fees or investor tax. Post tax returns are stated after Strategy fees and expenses and investor tax at the highest Prescribed Investor Rate (PIR). Past performance is not necessarily an indication of future returns.

Comparative Index

  • The comparative index is the 'S&P/NZX 90 Day Bank Bills Total Return Index'.

    The after tax comparative index has been calculated by applying the highest PIR rate (currently 28%) to the comparative index.

Different calculation methodology

  • The performance graph for the Income Strategy and the comparative index is calculated and displayed on a pre tax, post Strategy fees basis.

    With regard to the comparative index, this is calculated on a different basis from that used in the Quarterly Fund Updates published for the Strategy. The calculation for the Quarterly Fund Update requires that the comparative index be calculated and displayed on a gross (before tax and Strategy fees and expenses) basis.

Maximum Decline and Risk

  • Returns should be looked at in conjunction with the level of risk associated with an investment. "Maximum decline" is a measure of risk. It represents the largest decline in value experienced during the last 12 months.
  • For more information on risk including the Strategy's risk indicator please see the NZ Funds KiwiSaver Scheme Product Disclosure Statement or the latest Fund Updates.

Note: Rounding may affect some numbers.

Portfolios


NZ Funds KiwiSaver Scheme Income Strategy

Indicative Strategy as at 28 February 2017
KiwiSaver Income Strategy Portfolio Table

1. The yield calculation represents an estimate of the yield on the Strategy, calculated using the most recent information provided by the external investment managers involved in managing the Strategy, hedged back to New Zealand dollars where appropriate. It is not calculated ‘as at’ any particular date as different external investment managers provide data at varying dates. As a result, in some instances the yields may lag the date of this Strategy summary. The yield is not the actual return on the Strategy, nor is it a projection or forecast. The Strategy’s return could be less than the Strategy’s yield. Details of the yield calculation are available on request from NZ Funds.
2. Net receivables include unrealised profit and loss and net receivables/payables. Although full cash backing is not required under the current futures exchange requirements, these figures assume that derivatives contracts are fully backed by cash unless used for leverage.
3. Total economic exposure represents the total economic value of a Strategy, which is the net asset value of the Strategy adjusted for the effect of direct derivative positions taken by the Strategy and indirect derivative positions taken other than via a fund including hedge funds. For more details on economic exposure, see the Other Material Information document on the Offer Register at www.companiesoffice.govt.nz/disclose.
Note: Rounding may affect any subtotals and totals.

Overview

Objective The objective of the Strategy is to provide exposure to income-orientated assets using an active investment management approach.
Risk & volatility Please see the NZ Funds KiwiSaver Scheme Product Disclosure Statement or the latest Fund Updates for information on risk.
LifeCycle allocation The LifeCycle Process allocates 5% of a member's funds to this Strategy. This allocation will remain constant until a member reaches age 60, from when it will gradually increase to 30% by age 65.
Minimum suggested investment timeframe 2 years +
Permitted investments The Strategy may invest in securities in the following asset classes:

• Cash and cash equivalents
• New Zealand fixed interest
• International fixed interest
• Foreign currency
• Alternative securities *

* 'Alternative securities' means asset classes not usually accessed by retail investors, for example, private equity, venture capital and hedge funds. These tend to be asset classes where valuation and liquidity may be uncertain and returns may be volatile.
Anticipated investment approach Over time, it is anticipated that the Strategy will hold a significant exposure to cash and cash equivalents, international fixed interest and/or New Zealand fixed interest.
Further information Further information is contained in the NZ Funds KiwiSaver Scheme Product Disclosure Statement

Inflation Strategy

Insights

KiwiSaver Inflation Strategy Insights Chart

Solid foundations

MFA Financial is a New York-based real estate investment trust listed on the New York Stock Exchange and investing primarily in residential mortgage-backed securities. At 31 December 2016 it had total assets of US$12.5 billion1.

MFA does not use an external manager but is ‘self-managed’. Until 2009, it invested only in those mortgages implicitly backed by the United States Government, but has since diversified into non-guaranteed mortgages.

MFA’s status as a listed company gives it ‘permanent capital’, obviating the redemption risk that arises when a company has to liquidate investments to repay investors directly. Unitholders exiting their investment sell units on the market to other investors.

For MFA, this means it can have confidence it will be able to hold its investments until maturity, giving it the ability to plan and focus its book.

Our analysis of MFA’s December 2016 fourth quarter results shows it continues to focus its portfolio towards credit-sensitive securities and away from interest-rate sensitive securities. Its biggest risk is a downturn in the United States housing market, which we see as unlikely in the near term given strong employment data and solid economic growth prospects.

In this Strategy we have held MFA units since 2013, achieving an annual average return of 12%. We expect this to moderate to around 8% per annum, still an attractive return within the Strategy.

NZ Funds is an active investment manager. Accordingly, any securities discussed above may or may not be held by the Strategy at any given point in time.
1. MFA Financial Fourth Quarter 2016 financial results.
* Source: Bloomberg, NZ Funds calculations.

Performance

Performance since inception (31 October 2010) to 28 February 2017
KiwiSaver Inflation Strategy Chart KiwiSaver Inflation Strategy Performance Table

NZ Funds KiwiSaver Scheme Inflation Strategy

  • Pre tax returns are stated after Strategy fees and expenses, but before any advisory fees or investor tax. Post tax returns are stated after Strategy fees and expenses and investor tax at the highest Prescribed Investor Rate (PIR). Past performance is not necessarily an indication of future returns.

Comparative Index

  • The comparative index is made up of 50% of the ‘S&P/NZX 90 Day Bank Bills Total Return Index’ and 50% of the ‘MSCI All Countries World Index with net dividends in local currency’.

    A fee of 1.0% pa is deducted which is an estimate of the cost of obtaining a passive exposure through a Portfolio Investment Entity (PIE).

    The after tax comparative index is calculated by applying the appropriate tax calculation for the asset class and the highest PIR tax rate (currently 28%).

Different calculation methodology

  • The performance graph for the Inflation Strategy and the comparative index is calculated and displayed on a pre tax, post Strategy fees basis.

    With regard to the comparative index, this is calculated on a different basis from that used in the Quarterly Fund Updates published for the Strategy. The calculation for the Quarterly Fund Update requires that the comparative index be calculated and displayed on a gross (before tax and Strategy fees and expenses) basis.

Maximum Decline and Risk

  • Returns should be looked at in conjunction with the level of risk associated with an investment. "Maximum decline" is a measure of risk. It represents the largest decline in value experienced during the last 12 months.
  • For more information on risk including the Strategy's risk indicator please see the NZ Funds KiwiSaver Scheme Product Disclosure Statement or the latest Fund Updates.

Note: Rounding may affect some numbers.

Portfolios


NZ Funds KiwiSaver Scheme Inflation Strategy

Indicative Strategy as at 28 February 2017
KiwiSaver Inflation Strategy Portfolios Table

1. The yield calculation represents an estimate of the yield on the Strategy, calculated using the most recent information provided by the external investment managers involved in managing the Strategy, hedged back to New Zealand dollars where appropriate. It is not calculated ‘as at’ any particular date as different external investment managers provide data at varying dates. As a result, in some instances the yields may lag the date of this Strategy summary. The yield is not the actual return on the Strategy, nor is it a projection or forecast. The Strategy’s return could be less than the Strategy’s yield. Details of the yield calculation are available on request from NZ Funds.
2. Price/Earnings is based on next year’s forecast earnings (NPAT) Source: Bloomberg.
3. Where a strategy is shown, the asset class reflects the predominant assets in the strategy. The strategy may include other assets including cash.
4. Net receivables include unrealised profit and loss and net receivables/payables. Although full cash backing is not required under the current futures exchange requirements, these figures assume that derivatives contracts are fully backed by cash unless used for leverage.
5. Total economic exposure represents the total economic value of a Strategy, which is the net asset value of the Strategy adjusted for the effect of direct derivative positions taken by the Strategy and indirect derivative positions taken other than via a fund including hedge funds. For more details on economic exposure, see the Other Material Information document on the Offer Register at www.companiesoffice.govt.nz/disclose.
Note: Rounding may affect any subtotals and totals.

Overview

Objective The objective of the Strategy is to mitigate the impact of inflation on your investment over the medium and/or long-term by investing in income-orientated assets and growth-orientated assets using an active investment management approach.
Risk & volatility Please see the NZ Funds KiwiSaver Scheme Product Disclosure Statement or the latest Fund Updates for information on risk.
LifeCycle allocation The LifeCycle Process allocates 10% of a member's funds to this Strategy until the member reaches the age of 46, from when their allocation will gradually increase.
Minimum suggested investment timeframe 5 years +
Permitted investments The Strategy may invest in securities in the following asset classes:

• Cash and cash equivalents
• New Zealand fixed interest
• International fixed interest
• Australasian equities
• International equities
• Listed property
• Foreign currency
• Commodities
• Alternative securities *

* 'Alternative securities' means asset classes not usually accessed by retail investors, for example, private equity, venture capital and hedge funds. These tend to be asset classes where valuation and liquidity may be uncertain and returns may be volatile.
Anticipated investment approach Over time, it is anticipated that the Strategy will hold a diversified range of assets expected to include cash and cash equivalents, New Zealand fixed interest, international fixed interest, Australasian equities, international equities, and/or commodities.
Further information Further information is contained in the NZ Funds KiwiSaver Scheme Product Disclosure Statement

Growth Strategy

Insights

KiwiSaver Growth Strategy Insights Chart

Around the world in 90 days

Every three months we review our asset allocations regionally to ensure our Strategies are focused where the prospects are strongest.

This involves looking at the relative valuation of each market, looking at the direction and momentum of corporate earnings within each market, and examining whether economists are revising earnings expectations upwards or downwards.

We then analyse each market’s sectoral exposure – a predominance of financial or agricultural stocks, say – and overlay that with analysis of our general view of global economic themes.

This results in adjustments to our exposures within the Strategies relative to world equity market indices.

Following our latest review, the Strategies have a higher than ‘normal’ exposure to the United States and Japan.

Although the United States market looks fully valued at present, we see economic growth momentum as strong. Furthermore, some of newly-elected President Donald Trump’s announced policies – for example, tax reductions and the wind back of regulation – are likely to boost economic growth further.

In Japan, ‘quantitative easing’ by the Bank of Japan has yet to wind down. Together with governance reforms aimed at increasing Japanese companies’ return on equity, this is likely to drive better performance by corporate Japan.

Our exposure to Europe is currently at the long-term average. While we feel those markets look cheap on a valuation basis, political and economic headwinds offset the lower valuations.

We are underweight the index in the United Kingdom and in emerging markets. Uncertainty over the course of Brexit still necessitates caution, while for emerging markets the possibility of trade wars with the United States is a major consideration.

NZ Funds is an active investment manager. Accordingly, any securities discussed above may or may not be held by the Strategy at any given point in time.
* Source: NZ Funds calculations.

Performance

Performance since inception (31 October 2010) to 28 February 2017
KiwiSaver Growth Strategy Chart KiwiSaver Inflation Strategy Performance Table

NZ Funds KiwiSaver Scheme Growth Strategy

  • Pre tax returns are stated after Strategy fees and expenses, but before any advisory fees or investor tax. Post tax returns are stated after Strategy fees and expenses and investor tax at the highest Prescribed Investor Rate (PIR). Past performance is not necessarily an indication of future returns.

Comparative Index

  • The comparative index is the ‘MSCI All Country World Index with net dividends in local currency’ less a fee which is an estimate of the cost of obtaining a passive global share market exposure through a Portfolio Investment Entity (PIE).

    Since 1 October 2015 a fee estimate of 1% has been used, prior to 1 October 2015 a fee estimate of 1.75% pa was used.

    The after tax comparative index is calculated by applying the appropriate tax rates for the asset class and the highest PIR tax rate (currently 28%). This comparative index differs from that used in previous Portfolio Insights, and is based on the requirements of the Financial Markets Conduct Act 2013.

Maximum Decline and Risk

  • Returns should be looked at in conjunction with the level of risk associated with an investment. "Maximum decline" is a measure of risk. It represents the largest decline in value experienced during the last 12 months.
  • For more information on risk including the Strategy's risk indicator please see the NZ Funds KiwiSaver Scheme Product Disclosure Statement or the latest Fund Updates.

Note: Rounding may affect some numbers.

Portfolios


NZ Funds KiwiSaver Scheme Growth Strategy

Indicative Strategy as at 28 February 2017
KiwiSaver Growth Strategy Portfolio Table

1. The yield calculation represents an estimate of the yield on the Strategy, calculated using the most recent information provided by the external investment managers involved in managing the Strategy, hedged back to New Zealand dollars where appropriate. It is not calculated ‘as at’ any particular date as different external investment managers provide data at varying dates. As a result, in some instances the yields may lag the date of this Strategy summary. The yield is not the actual return on the Strategy, nor is it a projection or forecast. The Strategy’s return could be less than the Strategy’s yield. Details of the yield calculation are available on request from NZ Funds.
2. Price/Earnings is based on next year’s forecast earnings (NPAT) Source: Bloomberg.
3. Where a strategy is shown, the asset class reflects the predominant assets in the strategy. The strategy may include other assets including cash.
4. Net receivables include unrealised profit and loss and net receivables/payables. Although full cash backing is not required under the current futures exchange requirements, these figures assume that derivatives contracts are fully backed by cash unless used for leverage.
5. Total economic exposure represents the total economic value of a Strategy, which is the net asset value of the Strategy adjusted for the effect of direct derivative positions taken by the Strategy and indirect derivative positions taken other than via a fund including hedge funds. For more details on economic exposure, see the Other Material Information document on the Offer Register at www.companiesoffice.govt.nz/disclose.
Note: Rounding may affect any subtotals and totals.

Overview

Objective The objective of the Strategy is to grow your investment over the long-term by investing in income-orientated assets and growth-orientated assets using an active investment management approach.
Risk & volatility Please see the NZ Funds KiwiSaver Scheme Product Disclosure Statement or the latest Fund Updates for information on risk.
LifeCycle allocation The LifeCycle Process allocates 85% of a member's funds to this Strategy until the member reaches the age of 46, from when their allocation will gradually decrease.
Minimum suggested investment timeframe 10 years +
Permitted investments The Strategy may invest in securities in the following asset classes:

• Cash and cash equivalents
• New Zealand fixed interest
• International fixed interest
• Australasian equities
• International equities
• Listed property
• Foreign currency
• Commodities
• Alternative securities *

* 'Alternative securities' means asset classes not usually accessed by retail investors, for example, private equity, venture capital and hedge funds. These tend to be asset classes where valuation and liquidity may be uncertain and returns may be volatile.
Anticipated investment approach Over time, it is anticipated that the Strategy will hold a significant exposure to Australasian equities, international equities, and/or alternative securities.
Further information Further information is contained in the NZ Funds KiwiSaver Scheme Product Disclosure Statement

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These Terms and Conditions are in addition to and do not replace, any specific terms and conditions applicable to any New Zealand Funds Management product or service. To the extent that there is any conflict between these Terms and Conditions and those of any specific products or services, the terms applicable to those products or services will prevail.

Any reference to "NZ Funds", "we", "us" and "our" is a reference to New Zealand Funds Management Limited, its directors, employees and related parties.

Disclaimer

The content of the NZ Funds Website is general in nature, and for information purposes only. While care has been taken to supply information on the NZ Funds Website that is correct, accurate and up to date, we do not guarantee that this is the case, or that the information is relevant or suitable for your intended use. NZ Funds is not liable for any loss, liability or damage suffered by any person that may result from any errors, omissions, recommendations or opinions expressed on the NZ Funds Website. Accordingly, before making any investment or taking or refraining from taking any action based upon this information, we recommend that you first consult with an Authorised Financial Adviser.

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0508 733 337 or by email to info@nzfunds.co.nz.

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These terms and conditions are governed by the laws of New Zealand and are subject to the non-exclusive jurisdiction of the Courts of New Zealand.



OUR OFFICES

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Auckland 1010

Private Bag 92163
Auckland 1142

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0508 693 8637

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Wellington 6011

PO Box 2697
Wellington 6140

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0800 850 000

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PO Box 1686
Christchurch Mail Centre
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Timaru 7940

PO Box 85
Timaru 7940

03 683 1989

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PO Box 769
Wanaka 9343

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PO Box 5215
Dunedin 9058

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PO Box 364
Invercargill 9840

03 218 2895
0800 697 526

Complaints


Client complaints

Our business philosophy is to establish and enhance long-term, positive relationships with all of our clients. We recognise though that from time to time, despite our very best efforts, clients may wish to make a complaint. It is important in such instances that clients have an efficient mechanism through which they can receive a fair consideration of their concerns.

If you have a complaint contact us:


Complaints Handling Officer
New Zealand Funds Management Limited
Private Bag 92163
Auckland 1142

0508 733 337
info@nzfunds.co.nz

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How we deal with complaints

Upon receipt of your complaint we will immediately log it into our complaints register and it will be forwarded to the appropriate staff member for consideration.

Within five working days of receipt, we will provide you with a letter of acknowledgement that your complaint has been received. We will endeavour to keep you notified and updated on the progress of our consideration.

If your complaint cannot be resolved to your satisfaction through our internal complaints process you can elect to take it up with NZ Funds' independent dispute resolutions scheme.


Financial Services Complaints Limited
PO Box 5967
Wellington 6011

0800 347 257
info@fscl.org.nz