Strategies & Performance

Income Strategy

Insights

KiwiSaver Income Strategy Insights Chart

Adieu, Symantec

The art of analysing bonds is to understand their asymmetric risk.

Bonds are issued ‘at par’ – if you invest $100 and hold the bond until maturity, you get $100 back from the issuer plus the coupons in between. So from a capital perspective, you stand to gain nothing, but you take on the risk that the issuer will default in which case you will get back considerably less.

The universe of bonds from which this Strategy can choose to invest is very large. While defaults are rare, we are constantly adjusting the Strategy’s holdings to seek to balance returns with issuers’ changing risk profiles.

We have recently sold the holding of June 2022 bonds issued by Symantec, a provider of digital security and information management solutions.

Symantec’s share price benefited from the ‘Wannacry’ ransomware virus attacks. However, the perception that this will boost sales of software security packages is probably flawed. The true lesson from ‘Wannacry’ is that individuals and organisations need to keep pace with the latest versions of Microsoft software, and to exercise care when opening links from sources whose bona fides they are unable to verify.

In consumer data security, Symantec competes with several providers, Microsoft included, that provide solutions for free. Symantec may be better-placed to continue selling security solutions to enterprises.

The criteria we use to evaluate the strength of bond issuers includes risks at the industry and company levels, including secular changes, market positon and competitive strengths and weaknesses. We see Symantec as vulnerable to ‘secular change’ within its industry, as its ability to profit from sales of virus security packages is eroded by free alternatives.

Given these challenges, we consider the Strategy has better alternatives in the bond universe in which to invest.


* Source: 2017 Internet Security Threat Report, Symantec.

Performance

Performance since inception (31 October 2010) to 31 May 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 31 May 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

A capital return opportunity

This Strategy typically holds a mix of growth assets and defensive assets. Recently the Strategy added to one of its defensive asset holdings, Crown Resorts subordinated debt securities, based on an attractive yield against a background of the company’s increasingly robust balance sheet.

In last month’s Manager’s Insight for the Dividend and Growth Portfolio, we charted the growth prospects of shares in Crown Resorts by examining its recent history.

Crown’s casino and entertainment complexes and gaming licences constitute high-quality, long-life assets with monopoly characteristics. Currently they operate hotel and casino resorts in Melbourne and Perth and are developing another in Sydney - in the inner-city, harbour-side suburb of Barangaroo. The 350-room, six-star Crown Sydney, scheduled to open in 2020, will be Sydney’s second casino operation, but will be restricted to VIP membership.

Since 2007 Crown’s Australian operations have been complemented by a significant investment in Melco Resorts, a Macau based casino and entertainment resort. At the end of 2016 Crown decided to sell down its A$1.6bn holding in Melco Resorts to focus solely on Australia. This sell down was completed in early May, and Crown has said it would undertake several capital management activities: payment of a special dividend will return cash to shareholders; a higher dividend policy will be adopted, in addition to an on-market share buyback decreasing the number of shares on issue; and a programme of buying back some of its subordinated notes to reduce debt.

Following completion of these initiatives, Crown will have little outstanding debt. There will also be little need for it to leave outstanding the two subordinated debt securities held in this Strategy, and we would anticipate Crown will look to buy them back on market or redeem them at the earliest opportunity.

We think the market is taking some time to give Crown the benefit of the doubt around its new focused strategy, which is fair enough given the large changes in a short period. In the meantime, these securities provide an attractive yield backed by exposure to a company with strong earnings and a robust balance sheet.

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.

Performance

Performance since inception (31 October 2010) to 31 May 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 31 May 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

Tour of Duty

At least once a year, two members of our Investment team travel around the United States meeting with asset managers to gauge opinion and assess new ideas.

This year, our Chief Investment Officer, Michael Lang, and our Investment Strategist, David Wilson, attended 42 meetings over a ten-day period. These meetings included NZ Funds’ external managers, potential new external managers, market strategists, brokers, and Wall St legends such as Stanley Druckenmiller (who previously worked with George Soros), Bill Ackman of Pershing Square, David Einhorn of Greenlight Capital, and Bridgewater, which manages more than US$160 billion for just 360 clients.

One highlight was the annual event in New York held by the Sohn Conference Foundation, a charity dedicated to supporting innovative initiatives to cure and treat pediatric cancer. The conference calls on Wall St’s most successful investors to share their expertise and NZ Funds was one of a select group of investors to attend the conference. The conferences – run around the world – provide an opportunity to meet both experienced and up-and-coming managers.

The meetings didn’t just focus on share research but also covered the global economic outlook. One highlight was hearing from Kevin Warsh who was Ben Bernanke’s right-hand man during the Global Financial Crisis.

NZ Funds looks to invest our clients’ money with world-leading investment managers. At times these managers may perform differently than market indices or ‘the consensus’. But the reason they have been successful is that they see things differently than the consensus. At times they may be wrong, but this is why we invest in several managers, not just one. Regularly revisiting these managers and retesting their views and processes ensures we continue to invest with only the best.

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.

Performance

Performance since inception (31 October 2010) to 31 May 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 31 May 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 Limited 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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Jurisdiction

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.



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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
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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
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0800 347 257
info@fscl.org.nz