Portfolios & Performance

Core Cash Portfolio

Insights

Managed Portfolios Core Cash Insights Graph

Digesting the Budget

The Official Cash Rate (OCR) remains at 1.75% following the Reserve Bank of New Zealand’s 11 May OCR Review and Monetary Policy Statement.

The RBNZ now appears somewhat at odds with market economists in that it extended out until 2019 its view of when conditions would support an official interest rate hike.

Some economists are predicting the RBNZ will need to lift interest rates as soon as the fourth quarter of this year. Our view is that the OCR will start to move again from the first quarter of 2018.

The RBNZ will next review the OCR on 22 June. One development it will need to factor in will be Finance Minister Steven Joyce’s 25 May Budget. The headline Budget news was tax cuts averaging around $1000 a year via tax threshold adjustments, together with higher Accommodation Supplement payments to beneficiaries. The tax cuts will not kick in until the new tax year begins on 1 April 2018, and then only if the current government is re-elected. However, there is a tendency for people to pre-spend in anticipation of higher disposable incomes, and this should help ensure consumer spending remains buoyant in the intervening period.

The RBNZ again referred to “extensive political uncertainty” and “on-going surplus capacity” in global markets, but noted also that “global economic growth has increased and become more broadly based over recent months”. Monetary policy is expected to remain stimulatory in the advanced economies, but less so going forward. This concurs with our view of synchronised growth and increasing wealth across developed markets, indicating an upwards interest rate track over time.

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

Performance

Performance since inception (28 February 2008) to 31 May 2017
Managed Portfolios Core Cash Performance Graph Managed Portfolios Core Cash Performance Table

Core Cash Portfolio

  • Pre tax returns are stated after Portfolio fees and expenses, but before any advisory fees or investor tax. Post tax returns are stated after Portfolio 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 based on the 'S&P/NZX Call Deposit Total Return Index'.

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

Maximum Decline and Volatility

  • 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 Portfolio's risk indicator please see the NZ Funds Managed Portfolio Service Product Disclosure Statement or the latest Fund Updates.

Note: Rounding may affect some numbers.

Portfolios


Core Cash Portfolio

Complete Portfolio as at 31 May 2017
Managed Portoflios Core Cash Portfolio Table

1. The yield is not the actual return of the portfolio, nor is it a projection or forecast. Details of the yield calculation are available on request from NZ Funds.
2. Net receivables include unrealised profit and loss and net receivables/payables.
3. Total economic exposure represents the total economic value of a Portfolio, which is the net asset value of the Portfolio adjusted for the effect of direct derivative positions taken by the Portfolio 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 Portfolio is to provide a source of capital by primarily investing in income-orientated assets using an active investment management approach.
Investment category Cash
Risk & volatility Please see the NZ Funds Managed Portfolio Service Product Disclosure Statement or the latest Fund Updates for information on risk.
Minimum suggested investment timeframe 1 month +
Permitted investments The Portfolio may invest in securities in the following asset classes:

• Cash and cash equivalents
• New Zealand fixed interest
• International fixed interest
• Foreign currency
Anticipated investment approach Over time, it is anticipated that the Portfolio will hold a significant exposure to cash and cash equivalents. From time to time the Portfolio may invest in New Zealand fixed interest and/or international fixed interest.
Redemption restriction The Portfolio has no redemption restrictions.
Further information Further information is contained in the NZ Funds Managed Portfolio Service Product Disclosure Statement.

Core Income Portfolio

Insights

Managed Portfolio Core Income Graph

An Australian data play

In the Manager’s Insight for the Property Inflation Portfolio for April 2017, we discussed the holding in Digital Realty, a property investor specialising in properties housing the hardware that supports cloud computing – a fast growing sector.

Recently this Portfolio invested in bonds issued by a similar business, Next DC, that is a little closer to home. Next DC is an Australian data centre operator that was listed on the Australian Stock Exchange in 2012. The company operates five large-scale state of the art data centres in Sydney, Melbourne, Brisbane, Canberra, and Perth, and is developing additional centres in Sydney, Melbourne and Brisbane.

Since listing, Next DC has grown rapidly. From minimal revenue in 2012, the company is forecast to generate A$119 million in sales for 2017, and EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) is forecast to rise to A$49 million, from A$27 million in 2016.

Next DC is well positioned to benefit from a combination of strong growth in cloud computing, the scale, quality and geographical location of their centres, and their Australian location which is important for customers concerned with data sovereignty.

To fund growth and repay existing debt Next DC recently issued A$300 million of 6.25% June 2021 senior unsecured bonds.

We see these bonds as an attractive addition to the Portfolio due to the company’s earnings providing strong cover for its interest costs, the benefit of property assets (the company will retain ownership of the new centres) and the bonds being well supported by equity with a market capitalisation of around A$1.1 billion.

NZ Funds is an active investment manager. Accordingly, any securities discussed above may or may not be held by the Portfolio at any given point in time.
* Source: NextDC / Frost & Sullivan Analysis.

Performance

Performance since inception (23 July 2008) to 31 May 2017
Core Income Performance Graph Core Income Performance Table

Core Income Portfolio

  • Pre tax returns are stated after Portfolio fees and expenses, but before any advisory fees or investor tax. Post tax returns are stated after Portfolio 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.

Maximum Decline and Volatility

  • 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 Portfolio's risk indicator please see the NZ Funds Managed Portfolio Service Product Disclosure Statement or the latest Fund Updates.

Note: Rounding may affect some numbers.

Portfolios


Core Income Portfolio

Complete Portfolio as at 31 May 2017
Core Income Portfolio Table

1. The yield is not the actual return of the portfolio, nor is it a projection or forecast. 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 Portfolio, which is the net asset value of the Portfolio adjusted for the effect of direct derivative positions taken by the Portfolio 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 Portfolio is to provide exposure to income-orientated assets using an active investment management approach.
Investment category Income
Risk & volatility Please see the NZ Funds Managed Portfolio Service Product Disclosure Statement or the latest Fund Updates for information on risk.
Minimum suggested investment timeframe 2 years +
Permitted investments The Portfolio 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 Portfolio will hold a significant exposure to cash and cash equivalents, New Zealand fixed interest, and/or international fixed interest.
Redemption restriction The Portfolio has a 63-day notice period.
Further information Further information is contained in the NZ Funds Managed Portfolio Service Product Disclosure Statement.

Global Income Portfolio

Insights

Global Income Insights Graph

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 portfolio can choose to invest is very large. While defaults are rare, we are constantly adjusting the Portfolio’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 Portfolio has better alternatives in the bond universe in which to invest.

NZ Funds is an active investment manager. Accordingly, any securities discussed above may or may not be held by the Portfolio at any given point in time.
* Source: 2017 Internet Security Threat Report, Symantec.

Performance

Performance since inception (31 October 2008) to 31 May 2017
Global Income Performance Graph Global Income Performance Table

Global Income Portfolio

  • Pre tax returns are stated after Portfolio fees and expenses, but before any advisory fees or investor tax. Post tax returns are stated after Portfolio 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.

Maximum Decline and Volatility

  • 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 Portfolio's risk indicator please see the NZ Funds Managed Portfolio Service Product Disclosure Statement or the latest Fund Updates.

Note: Rounding may affect some numbers.

Portfolios


Global Income Portfolio

Indicative Portfolio as at 31 May 2017
Global Income Insights Table

1. The yield is not the actual return of the portfolio, nor is it a projection or forecast. 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 Portfolio, which is the net asset value of the Portfolio adjusted for the effect of direct derivative positions taken by the Portfolio 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 Portfolio is to provide exposure to income-orientated assets using an active investment management approach.
Investment category Income
Risk & volatility Please see the NZ Funds Managed Portfolio Service Product Disclosure Statement or the latest Fund Updates for information on risk.
Minimum suggested investment timeframe 2 years +
Permitted investments The Portfolio 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 Portfolio will hold a significant exposure to cash and cash equivalents, international fixed interest, and/or New Zealand fixed interest.
Redemption restriction The Portfolio has a 63-day notice period.
Further information Further information is contained in the NZ Funds Managed Portfolio Service Product Disclosure Statement.

Core Inflation Portfolio

Insights

Core Inflation Insights Graph

A capital return opportunity

This Portfolio typically holds a mix of growth assets and defensive assets. Recently the portfolio 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 suborbinated debt securities held in this portfolio, 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 Portfolio at any given point in time.
* Source: Bloomberg.

Performance

Performance since inception (31 October 2008) to 31 May 2017
Core Inflation Performance Graph Core Inflation Performance Table

Core Inflation Portfolio

  • Pre tax returns are stated after Portfolio fees and expenses, but before any advisory fees or investor tax. Post tax returns are stated after Portfolio 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 Core Inflation Portfolio and the comparative index is calculated and displayed on a pre tax, post Portfolio 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 Portfolio. The calculation for the Quarterly Fund Update requires that the comparative index be calculated and displayed on a gross (before tax and Portfolio fees and expenses) basis.

Maximum Decline and Volatility

  • 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 Portfolio's risk indicator please see the NZ Funds Managed Portfolio Service Product Disclosure Statement or the latest Fund Updates.

Note: Rounding may affect some numbers.

Portfolios


Core Inflation Portfolio

Complete Portfolio as at 31 May 2017
Core Inflation Portfolio Table

1. The yield calculation represents an estimate of the yield on the Portfolio, calculated using the most recent information provided by the external investment managers involved in managing the Portfolio, 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 Portfolio summary. The yield is not the actual return on the Portfolio, nor is it a projection or forecast. The Portfolio’s return could be less than the Portfolio’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 Portfolio, which is the net asset value of the Portfolio adjusted for the effect of direct derivative positions taken by the Portfolio 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 Portfolio 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.
Investment category Inflation
Risk & volatility Please see the NZ Funds Managed Portfolio Service Product Disclosure Statement or the latest Fund Updates for information on risk.
Minimum suggested investment timeframe 5 years +
Permitted investments The Portfolio 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 Portfolio 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, commodities, foreign currency, and/or alternative securities.
Redemption restriction The Portfolio has a 63-day notice period.
Further information Further information is contained in the NZ Funds Managed Portfolio Service Product Disclosure Statement.

Property Inflation Portfolio

Insights

Property Inflation Insights Graph

Banking on a European renaissance

As growth re-emerges in Europe, value is evident in a number of areas such as hotels and housing. We are also very positive about banking stocks generally, and Spain’s largest bank, Santander Group, provides exposure to both property and banking.

Following the Global Financial Crisis, banks have had to rebuild their capital bases, and now have more robust balance sheets than was the case pre-GFC.

Regulation has been a headwind for the banking sector since 2008. We think the point of ‘peak regulation’ has now passed and this means that management will be able to focus more time on their core role of lending money. Further propelled by tailwinds of general global reflation and a rising interest rate environment, banks are poised to increase their lending which will be positive for earnings. We see Europe as the region best placed to benefit from this as it has been slow to emerge from the GFC and lending growth has been muted.

Among European banks we see the best opportunities in Spain. Spanish property market values declined 40-50% in the wake of the GFC, however this trend has reversed and prices are recovering across all property types – housing, commercial, industrial and office. This is positive for banks such as Santander as it will reduce their inventories of bad loans and will enable banks to exit their portfolio of foreclosed properties at a profit.

In summary, we see Santander as having the potential to unlock value from a strong macroeconomic recovery across Europe, and to benefit from an improving Spanish real estate market in particular.

Away from the banking space, we see opportunity in the property space in Europe, so expect to see some new Portfolio positions appear before long.

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

Performance

Performance since inception (31 October 2008) to 31 May 2017
Property Inflation Performance Graph Property Inflation Performance Table

Property Inflation Portfolio

  • Pre tax returns are stated after Portfolio fees and expenses, but before any advisory fees or investor tax. Post tax returns are stated after Portfolio 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 Property Inflation Portfolio and the comparative index is calculated and displayed on a pre tax, post Portfolio 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 Portfolio. The calculation for the Quarterly Fund Update requires that the comparative index be calculated and displayed on a gross (before tax and Portfolio fees and expenses) basis.

Maximum Decline and Volatility

  • 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 Portfolio's risk indicator please see the NZ Funds Managed Portfolio Service Product Disclosure Statement or the latest Fund Updates.

Note: Rounding may affect some numbers.

Portfolios


Property Inflation Portfolio

Complete Portfolio as at 31 May 2017
Property Inflation Portfolio Table

1. The yield calculation represents an estimate of the yield on the Portfolio, calculated using the most recent information provided by the external investment managers involved in managing the Portfolio, 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 Portfolio summary. The yield is not the actual return on the Portfolio, nor is it a projection or forecast. The Portfolio's return could be less than the Portfolio'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 Portfolio, which is the net asset value of the Portfolio adjusted for the effect of direct derivative positions taken by the Portfolio 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 Portfolio 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.
Investment category Inflation
Risk & volatility Please see the NZ Funds Managed Portfolio Service Product Disclosure Statement or the latest Fund Updates for information on risk.
Minimum suggested investment timeframe 5 years +
Permitted investments The Portfolio 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
• 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 Portfolio will hold a significant exposure to property and/or property related securities including infrastructure assets.
Redemption restriction The Portfolio has a 63-day notice period.
Further information Further information is contained in the NZ Funds Managed Portfolio Service Product Disclosure Statement.

Equity Inflation Portfolio

Insights

Equity Inflation Insights Graph

A mortgage market revival

In this Portfolio the international fixed interest exposure comprises a mix of inflation-adjusted bonds, floating rate notes, and perpetual securities.

On a recent visit to the United States we met with MFA Financial (MFA), a New York-based real estate investment trust (REIT) listed on the New York Stock Exchange and investing primarily in residential mortgage-backed securities. At 31 March 2017 it had total assets of US$13 billion1.

Until 2009, MFA invested only in those mortgages implicitly backed by the United States Government. This meant it was not caught in the sub-prime crisis of 2007–08. However, after 2008 it saw a significant opportunity in the sub-prime sector and has since invested very successfully.

Under United States’ tax rules, REITs must pay out 100% of their profits. They are then not taxed on these profits but instead the individual investors are taxed at their marginal tax rates. This is a good tax structure for a NZ investor as no additional tax is paid in the United States. MFA typically pays out profits equal to around a 10% annual yield.

This strong return is enabled partly by MFA’s purchase in 2008 of a book of mortgage-backed securities, and its subsequent purchases of defaulted mortgages. The holders of those mortgages are now starting to recommence payments, and MFA has engaged a company, Fay Servicing, whose business is to work with mortgage holders to ensure that they can make regular repayments.

Assisted by the generally strong United States economy, and falling unemployment, MFA’s mortgage book is continually improving over time. This improvement underpins the attractive yield the company pays and means it is sustainable over the medium term.

NZ Funds is an active investment manager. Accordingly, any securities discussed above may or may not be held by the Portfolio at any given point in time.
1 MFA Financial First Quarter Financial Results media release, 4 May 2017.
* Source: Baker Hughes.

Performance

Performance since inception (31 October 2008) to 31 May 2017
Equity Inflation Performance Graph Equity Inflation Performance Table

Equity Inflation Portfolio

  • Pre tax returns are stated after Portfolio fees and expenses, but before any advisory fees or investor tax. Post tax returns are stated after Portfolio 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 Equity Inflation Portfolio and the comparative index is calculated and displayed on a pre tax, post Portfolio 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 Portfolio. The calculation for the Quarterly Fund Update requires that the comparative index be calculated and displayed on a gross (before tax and Portfolio fees and expenses) basis.

Maximum Decline and Volatility

  • 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 Portfolio's risk indicator please see the NZ Funds Managed Portfolio Service Product Disclosure Statement or the latest Fund Updates.

Note: Rounding may affect some numbers.

Portfolios


Equity Inflation Portfolio

Complete Portfolio as at 31 May 2017
Equity Inflation Portfolio Table

1. The yield calculation represents an estimate of the yield on the Portfolio, calculated using the most recent information provided by the external investment managers involved in managing the Portfolio, 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 Portfolio summary. The yield is not the actual return on the Portfolio, nor is it a projection or forecast. The Portfolio’s return could be less than the Portfolio’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 Portfolio, which is the net asset value of the Portfolio adjusted for the effect of direct derivative positions taken by the Portfolio 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 Portfolio 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.
Investment category Inflation
Risk & volatility Please see the NZ Funds Managed Portfolio Service Product Disclosure Statement or the latest Fund Updates for information on risk.
Minimum suggested investment timeframe 5 years +
Permitted investments The Portfolio 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 Portfolio will hold a significant exposure to Australasian equities, international equities, and/or alternative securities.
Redemption restriction The Portfolio has a 63-day notice period.
Further information Further information is contained in the NZ Funds Managed Portfolio Service Product Disclosure Statement.

Core Growth Portfolio

Insights

Core Growth Insights Graph

Rebalancing the world

Each quarter we conduct valuations of the major global equity markets and adjust the Portfolio’s exposure to each market based on these forecasts. Our latest analysis shows the most promising regions are Europe and Emerging Markets.

In the United States, equity markets as reflected by the major indices are looking fairly valued. While we have previously had higher than normal allocations to the United States, with these markets at or near to all-time highs, we are looking at reducing some of this exposure.

In Europe, holdings in this Portfolio have been predominantly through exposure to the major German market, as represented by the DAX index. This index has performed well over the past quarter but continues to look attractive based on both valuations and improving earnings. Consequently, we are looking at increasing our exposure to this sector.

We are still cautious about exposure to Britain. While British stocks look reasonably valued, considerable uncertainty persists over the outcome of the Brexit divorce negotiations and the recent UK election result. In addition, the FTSE100 index is dominated heavily by oil, insurance and banking stocks, slanting index exposure excessively towards these sectors.

Valuations for Emerging Markets look positive but economic fundamentals are less positive. Leading economic indicators are showing signs of slowing and typically emerging markets have struggled during periods when the United States increases interest rates. We also have significant exposure to resources companies but in the developed markets. We are therefore taking a cautious approach and have limited exposure to this sector.

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

Performance

Performance since inception (31 October 2008) to 31 May 2017
Core Growth Performance Graph Core Growth Performance Table

Core Growth Portfolio

  • Pre tax returns are stated after Portfolio fees and expenses, but before any advisory fees or investor tax. Post tax returns are stated after Portfolio 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’.

    Since October 2015, a fee of 1.00% pa has been deducted to reflect the cost of obtaining a passive global share market exposure through a Portfolio Investment Entity (PIE). Prior to October 2015, a fee of 1.75% was used.

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

Different calculation methodology

  • The performance graphs for the Core Growth Portfolio and the comparative index are calculated and displayed on a pre tax, post Portfolio 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 Portfolio. The calculation for the Quarterly Fund Update requires that the comparative index be calculated and displayed on a gross (before tax and Portfolio fees and expenses) basis.

Maximum Decline and Volatility

  • 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 Portfolio's risk indicator please see the NZ Funds Managed Portfolio Service Product Disclosure Statement or the latest Fund Updates.

Note: Rounding may affect some numbers.

Portfolios


Core Growth Portfolio

Complete Portfolio as at 31 May 2017
Core Growth Portfolio Table

1. The yield calculation represents an estimate of the yield on the Portfolio, calculated using the most recent information provided by the external investment managers involved in managing the Portfolio, 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 Portfolio summary. The yield is not the actual return on the Portfolio, nor is it a projection or forecast. The Portfolio’s return could be less than the Portfolio’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 Portfolio, which is the net asset value of the Portfolio adjusted for the effect of direct derivative positions taken by the Portfolio 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 Portfolio 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.
Investment category Growth
Risk & volatility Please see the NZ Funds Managed Portfolio Service Product Disclosure Statement or the latest Fund Updates for information on risk.
Minimum suggested investment timeframe 10 years +
Permitted investments The Portfolio 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 Portfolio will hold a diversified range of assets with a significant exposure to growth-orientated assets.
Redemption restriction The Portfolio has a 63-day notice period.
Further information Further information is contained in the NZ Funds Managed Portfolio Service Product Disclosure Statement.

Global Multi-Asset Growth Portfolio

Insights

Global Multi Asset Growth Insights Graph

Oil’s uncertain future

The outlook for the oil price depends on how far ahead you care to look. For now, we are happy with this Portfolio’s relatively large exposure to oil.

In the shorter term, supply/demand imbalance factors have some way to play out. OPEC producers are continuing to cut production to remove the historical oil ‘glut’, currently assessed to be around 300 million barrels.

An OPEC communique on 26 May announced that the November 2016 agreement to reduce output by 1.8 million barrels a day would stay in place until March 20181.

However, OPEC cuts to date have been replaced partially by increased United States shale oil production as crude oil prices have recovered from last year’s lows to around US$50 a barrel.

Over a 12-month period, shale oil producers will not be able to replace as much supply as OPEC producers are cutting. We think that by the end of 2017 there will be a small supply deficit.

Through this period oil is likely to trade in the US$45 to US$55 range. As prices near $US55 we will start to reduce our exposure, which is via oil futures and shares in oil industry services companies.

Over the longer term, the track for oil prices is more mixed.

Advances in energy efficiency technologies are exerting continual downward pressure on demand. And the rate of uptake of technologies such as electric vehicles is highly uncertain – around half of all demand for oil is for motor vehicles. Offsetting those factors, years of underinvestment in large projects such as deep sea oil exploration and production have crimped supply growth.

We will continue to monitor the trade-offs between these longer and shorter term factors and review our Portfolio positions accordingly, although longer term it is likely that this Portfolio will have a lower allocation to oil.

NZ Funds is an active investment manager. Accordingly, any securities discussed above may or may not be held by the Portfolio at any given point in time.
1 OPEC extends output cut, but big oil price rise unlikely, Associated Press, 27 May 2017.
* Source: Bloomberg, NZ Funds calculations.

Performance

Performance since inception (7 November 2011) to 31 May 2017
Global Multi Asset Growth Performance Graph Global Multi Asset Growth Performance Table

Global Multi-Asset Growth Portfolio

  • Pre tax returns are stated after Portfolio fees and expenses, but before any advisory fees or investor tax. Post tax returns are stated after Portfolio 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 ‘Bloomberg Commodity Total Return Index’.

    Since October 2015, a fee of 1.00% pa has been deducted to reflect the cost of obtaining a passive global commodity exposure through a Portfolio Investment Entity (PIE). Prior to October 2015, a fee of 1.75% was used.

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

Different calculation methodology

  • The performance graph for the Global Multi-Asset Growth Portfolio and the comparative index is calculated and displayed on a pre tax, post Portfolio 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 Portfolio. The calculation for the Quarterly Fund Update requires that the comparative index be calculated and displayed on a gross (before tax and Portfolio fees and expenses) basis.

Maximum Decline and Volatility

  • 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 Portfolio's risk indicator please see the NZ Funds Managed Portfolio Service Product Disclosure Statement or the latest Fund Updates.

Note: Rounding may affect some numbers.

Portfolios


Global Multi-Asset Growth Portfolio

Complete Portfolio as at 31 May 2017
Global Multi Asset Growth Portfolio Table

1. The yield calculation represents an estimate of the yield on the Portfolio, calculated using the most recent information provided by the external investment managers involved in managing the Portfolio, 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 Portfolio summary. The yield is not the actual return on the Portfolio, nor is it a projection or forecast. The Portfolio’s return could be less than the Portfolio’s yield. Details of the yield calculation are available on request from NZ Funds.
2. Where a strategy is shown, the asset class reflects the predominant assets in the strategy. The strategy may include other assets including cash.
3. 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.
4. Total economic exposure represents the total economic value of a Portfolio, which is the net asset value of the Portfolio adjusted for the effect of direct derivative positions taken by the Portfolio 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 Portfolio 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.
Investment category Growth
Risk & volatility Please see the NZ Funds Managed Portfolio Service Product Disclosure Statement or the latest Fund Updates for information on risk.
Minimum suggested investment timeframe 10 years +
Permitted investments The Portfolio 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 Portfolio will hold a diversified range of assets with a significant exposure to commodities and/or alternative securities.
Redemption restriction The Portfolio has a 63-day notice period.
Further information Further information is contained in the NZ Funds Managed Portfolio Service Product Disclosure Statement.

Global Equity Growth Portfolio

Insights

Global Equity Growth Insights Graph

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 Portfolio at any given point in time.

Performance

Performance since inception (31 October 2008) to 31 May 2017
Global Equity Growth Performance Graph Global Equity Growth Performance Table

Global Equity Growth Portfolio

  • Pre tax returns are stated after Portfolio fees and expenses, but before any advisory fees or investor tax. Post tax returns are stated after Portfolio 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’.

    Since October 2015, a fee of 1.00% pa has been deducted to reflect the cost of obtaining a passive global share market exposure through a Portfolio Investment Entity (PIE). Prior to October 2015, a fee of 1.75% was used.

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

Different calculation methodology

  • The performance graphs for the Global Equity Growth Portfolio and the comparative index are calculated and displayed on a pre tax, post Portfolio 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 Portfolio. The calculation for the Quarterly Fund Update requires that the comparative index be calculated and displayed on a gross (before tax and Portfolio fees and expenses) basis.

Maximum Decline and Volatility

  • 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 Portfolio's risk indicator please see the NZ Funds Managed Portfolio Service Product Disclosure Statement or the latest Fund Updates.

Note: Rounding may affect some numbers.

Portfolios


Global Equity Growth Portfolio

Complete Portfolio as at 31 May 2017
Global Equity Growth Portfolio Table

1. The yield calculation represents an estimate of the yield on the Portfolio, calculated using the most recent information provided by the external investment managers involved in managing the Portfolio, 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 Portfolio summary. The yield is not the actual return on the Portfolio, nor is it a projection or forecast. The Portfolio’s return could be less than the Portfolio’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 Portfolio, which is the net asset value of the Portfolio adjusted for the effect of direct derivative positions taken by the Portfolio 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 Portfolio 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.
Investment category Growth
Risk & volatility Please see the NZ Funds Managed Portfolio Service Product Disclosure Statement or the latest Fund Updates for information on risk.
Minimum suggested investment timeframe 10 years +
Permitted investments The Portfolio 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 Portfolio will hold a diversified range of assets with a significant exposure to Australasian equities, international equities, and/or alternative securities.
Redemption restriction The Portfolio has a 63-day notice period.
Further information Further information is contained in the NZ Funds Managed Portfolio Service Product Disclosure Statement.

Dividend and Growth Portfolio

Insights

Dividend And Growth Insights Graph

Why don’t we own the banks?

We are often asked why the Dividend & Growth Portfolio doesn’t own shares in any of the ‘big four’ Australian banks. It’s a good question. The banks are large, highly profitable businesses that offer strong dividend yields and operate within an attractive industry structure (some would say an oligopoly). These characteristics fit nicely with the investment criteria of the Portfolio. However, whilst we regularly reassess our position, there are two key points which continue to deter us.

The first is valuation. We have not had the opportunity to buy shares in these companies at a level materially below our assessment of fair value.

The second is leverage. Banks rely on leverage more than any other business. They earn profits through lending out a little bit of their own money (shareholder equity), combined with a lot of other people’s money (deposits). A small reduction in the value of the bank’s assets (loans) can put a big dent in shareholder equity. Over 50% of Australian bank lending is against residential property, which looks overvalued. So, banks are highly exposed to an overvalued asset.

A further concern is the Australian government and regulator’s hardening stance towards the banks, with new levies and investigations announced recently.

To be clear, we are not forecasting a catastrophic decline in bank share prices. We will happily hold Australian bank bonds and international bank shares in other Portfolios. We just think that locally there are better risk-reward opportunities elsewhere. For the last three years this has been a profitable view, as ‘big four’ Australian bank shares are down -9% on average, versus an Australian market up 4%.

NZ Funds is an active investment manager. Accordingly, any securities discussed above may or may not be held by the Portfolio at any given point in time.
* Source: Reserve Bank of Australia, UBS.

Performance

Performance since inception (31 October 2008) to 31 May 2017
Dividend And Growth Performance Graph Dividend And Growth Performance Table

Dividend and Growth Portfolio

  • Pre tax returns are stated after Portfolio fees and expenses, but before any advisory fees or investor tax. Post tax returns are stated after Portfolio 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 70% of the ‘NZX 50 Portfolio Index Gross with imputation credits’ (or its predecessor index) and 30% of the ‘S&P/ASX 200 Accumulation Index’.

    Since October 2015, a fee of 1.00% pa has been deducted to reflect the cost of obtaining a passive market exposure through a Portfolio Investment Entity (PIE). Prior to October 2015, a fee of 1.75% was used.

    The after tax comparative index is calculated by applying the tax rules and the highest PIR tax rate (currently 28%). It has been assumed that New Zealand dividends are fully imputed and Australian dividend yields are 5% pa.

Different calculation methodology

  • The performance graphs for the Dividend and Growth Portfolio and the comparative index are calculated and displayed on a pre tax, post Portfolio 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 Portfolio. The calculation for the Quarterly Fund Update requires that the comparative index be calculated and displayed on a gross (before tax and Portfolio fees and expenses) basis.

Maximum Decline and Volatility

  • 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 Portfolio's risk indicator please see the NZ Funds Managed Portfolio Service Product Disclosure Statement or the latest Fund Updates.

Note: Rounding may affect some numbers.

Portfolios


Dividend and Growth Portfolio

Complete Portfolio as at 31 May 2017
Dividend And Growth Portfolio Table

1. The yield calculation represents an estimate of the yield on the Portfolio, calculated using the most recent information provided by the external investment managers involved in managing the Portfolio, 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 Portfolio summary. The yield is not the actual return on the Portfolio, nor is it a projection or forecast. The Portfolio’s return could be less than the Portfolio’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. 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.
4. Total economic exposure represents the total economic value of a Portfolio, which is the net asset value of the Portfolio adjusted for the effect of direct derivative positions taken by the Portfolio 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 Portoflio 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.
Investment category Growth
Risk & volatility Please see the NZ Funds Managed Portfolio Service Product Disclosure Statement or the latest Fund Updates for information on risk.
Minimum suggested investment timeframe 10 years +
Permitted investments The Portfolio 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
Anticipated investment approach Over time, it is anticipated that the Portfolio will hold a diversified range of assets with a significant exposure to Australasian equities.
Redemption restriction The Portfolio has a 63-day notice period.
Further information Further information is contained in the NZ Funds Managed Portfolio Service Product Disclosure Statement.

TERMS & CONDITIONS

By accessing and/or using www.nzfunds.co.nz (the "NZ Funds Website") you agree to be bound by the Terms and Conditions set out below.

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.

Further, we do not guarantee the relevance or accuracy of any information in any other websites accessed through the NZ Funds Website or any information, opinions or projections included in articles sourced from third parties.

Neither NZ Funds nor any other party guarantees the performance of any product included on the NZ Funds Website. Any predictions or projections (including those made in any article that appears on the NZ Funds Website) are an expression of opinion only. Any information about past performance is not necessarily an indication as to future performance.

While care has been taken to prevent the introduction of viruses on this website, we do not guarantee that it is free of viruses and we accept no responsibility or liability for any harm attributable to such destructive features.

For further information on any of the Portfolios included on the NZ Funds Website or to request a copy of the NZ Funds Managed Portfolio Service Product Disclosure Statement, the NZ Funds Managed Superannuation Service Product Disclosure Statement, or the NZ Funds KiwiSaver Scheme Product Disclosure Statement, you should contact NZ Funds on 0508 733 337 or by email to info@nzfunds.co.nz.

Copyright

Unless otherwise specified, the copyright in information, images, texts and screens on the NZ Funds Website is owned by NZ Funds or its suppliers and may not be altered, copied, published, reposted or reused without our prior consent. This includes, but is not limited to, the NZ Funds Website's content, text, graphics, logos, images, audio clips and software. You may not create a hyperlink to the NZ Funds Website without our consent.

Privacy

We may collect information provided by you when using the NZ Funds Website, including where we authenticate you as part of a log on process and through the use of cookies. Cookies are a small file stored on your computer that enables us to identify your computer. Cookies do not read your hard drive and cannot be used to personally identify you. They are designed to facilitate easier website use by registering information about your preferences.

Any personal information that you may provide to us on the NZ Funds Website will be held at our offices at Level 16, Zurich House, 21 Queen Street, Auckland and may be used by us to provide or communicate information about our products and services to you. Personal information may also be shared with relevant authorities, including the IRD. You have the right to access and correct any personal information that NZ Funds holds by contacting us on 0508 733 337.

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.



OUR OFFICES

Auckland

Level 16
Zurich House
21 Queen Street
Auckland 1010

Private Bag 92163
Auckland 1142

09 377 2277
0508 693 8637

Wellington

Level 3
Central on Midland Park
40 Johnston Street
Wellington 6011

PO Box 2697
Wellington 6140

04 473 7701
0800 697 526

Christchurch

Unit 7A
9 Sir Gil Simpson Drive
Burnside
Christchurch 8053

PO Box 1686
Christchurch Mail Centre
Christchurch 8140

03 366 9088
0800 697 526

Timaru

Level 1
2 Sefton Street East
Timaru 7940

PO Box 85
Timaru 7940

03 683 1989
0800 697 526

Wanaka

Level 2
Brownston House
21 Brownston Street Wanaka 9305
PO Box 769
Wanaka 9343

03 443 2300
0800 697 526

Dunedin

Level 2
Bracken Court
480 Moray Place
Dunedin 9016

PO Box 5215
Dunedin 9058

03 477 4647
0800 697 526

Invercargill

98C Yarrow Street
Invercargill 9810

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