Portfolios & Performance

Core Cash Portfolio

Insights

Managed Portfolios Core Cash Insights Graph

“Lower for longer” – but cyclical

The Reserve Bank of New Zealand has recently intensified its efforts to explain its monetary policy-making stance. On 26 July, Assistant Governor John McDermott gave a speech naming four economic trend indicators.

These were the neutral interest rate, the potential output gap, the equilibrium exchange rate, and core inflation.

The Bank estimates the neutral interest rate, at which monetary policy is neither tight nor loose, at 3.5%.

“The neutral interest rate has been slowly falling for some time. In part, this reflects developments in potential output growth – the sustainable growth rate of the economy,” McDermott said.

Potential output growth is estimated at 2.9%.

“Despite a boost from strong net immigration in recent years, growth in potential output has remained much lower than in the past two expansions due to nearly no contribution from productivity growth.”

The Bank did not put a number on the equilibrium exchange rate, but estimated core inflation at 1.4%, below the mid-point of the 1%-3% target range set by its Policy Targets Agreement with the Government. By filtering out temporary factors, [core inflation] provides a better guide to future medium-term inflation [than the Consumers Price Index], McDermott said.

We hold to our view that the Official Cash Rate (OCR) will not begin to move higher until the first half of 2018. However, we feel the neutral interest rate may be lower than the 3.5% estimated by the RBNZ. In particular, we would be surprised if interest rates reached a high of 5.25% in the next cycle. This rate would be consistent with 3.5% being the mid-point, given 1.75% is the prevailing rate at the start of a firming cycle.

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 July 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 July 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

Banks back in favour

In recent Portfolio Insights we have discussed our positive view toward the banking sector. This positive view is based on three key factors:

1. Gradually rising individual short-term interest rates – which benefit banks,

2. Synchronised economic growth across the three major economic regions (US, Europe and Asia) – which will encourage lending, and

3. An easing in the sector’s regulatory demands – which reduced administrative costs.

Each of these factors are positive for bank earnings and in turn their balance sheet strength. Based on this view we have added a range of exposures to the sector across the Portfolios;

Growth Portfolios – an allocation to bank shares.

Inflation Portfolio – an allocation to junior debt securities (capital notes) issued by banks.

Income Portfolios – an allocation to senior and subordinated bank bonds.

In this Portfolio we have an allocation to the Australasian banks – ANZ, BNZ and Westpac, and to Wells Fargo, the large US bank. However, the allocation most directly prompted by the positive view was the purchase of bonds issued by Spain’s largest bank (and one of Europe’s largest banks) Santander.

In early March 2017, the Portfolio purchased the Santander 5.179% November 2025 bond at a price of $US102.52 which equated to a 5.8% yield in New Zealand dollars.

This was intended as a long-term move as typically we look to hold positions in the Portfolio for a decent period of time and harvest the yield offered by the coupon. However, we also closely watch price changes to lock in any significant gains. This has happened with the Santander bond. Since March, other investors have also recognised that the outlook for banks has improved and they have bid up the price of the Santander bond since we purchased it. In July we chose to sell the holding at a price of $108.00 as we felt that all of the positive news was ‘in the price’ and that there were alternatives which offered higher yields than the 4.7% being offered by the bond. This provided a gain of 5.4% on the position over 4 months.

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 (23 July 2008) to 31 July 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 July 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

NRG’s turnaround

NRG is a United States electricity ‘gentailer’ supplying three million customers from its portfolio of fossil fuel and renewable generation.

In 2014, a visionary CEO, David Crane, launched a plan to transform NRG into a ‘green energy’ company, investing heavily in renewables.

The strategy didn’t work well and NRG racked up debt and booked heavy losses. Moving forward to 2017 and activist hedge fund investor, Elliott Management, became involved, taking a 6% stake and a board seat in January 2017, alongside John Wilder, a corporate turnaround veteran.

The two prompted NRG to accelerate a transformational plan to cut costs and sell non-core assets, mostly in the renewable generation portfolio. The plan, announced on 12 July, was well-received by markets and the share price rallied by around 47%. It will, if all goes well, leave shareholders with a company with annual EBITDA (earnings before interest, tax, depreciation and amortisation) of $US1.8 billion and essentially no debt.

In this Portfolio we hold NRG 7.25% 2026 bonds which, along with the shares, have traded extremely well since the announcement. We bought the bonds in 2016 at US$101.10. They now trade at US$106.00.

While this is no doubt an exceptional outcome for both equity and bondholders, the execution of NRG’s transformation plan is not without risk. Much depends on the scale and success of the company’s selldown of 85 million shares it holds in another publicly traded company, the renewables-focused NRG Yield. The plan envisaged a selldown of NRG’s entire stake which would, in our view, offer the cleanest way of addressing the problems the subsidiary presents in valuing NRG’s stock.

While upside is limited by call provisions attached to the bonds, they are still paying an outright yield of 6%. With a somewhat derisked balance sheet, NRG provides a high quality, high-yield portfolio position, and we retain our current holding.

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 July 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 July 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

Bluescope Steel – tempering our view

This Portfolio has a 70% allocation to New Zealand and Australian shares. One of the best performing investments within this allocation recently has been Australian steelmaker Bluescope Steel, whose share price is up over 50% since its initial purchase in November last year.

At that time, the company had recovered only partially from the savage post-GFC downleg of the commodities cycle.

As we expected last November, the company has benefited from strong steel demand in Australia and the United States, buoyant steel prices, Chinese attempts to address their steel supply glut, and the culmination of a cost-cutting drive.

In terms of earnings, the improvement in external conditions has been amplified by the effects of management’s business improvement programme to cut costs and boost efficiency. Consequently, the Bluescope share price has substantially outperformed that of other steel producers internationally.

Longer term however, we are conscious that Bluescope operates in a highly competitive, commoditised and cyclical sector. Some of its core assets – Port Kembla Steelworks in New South Wales and the Glenbrook steel mill near Auckland – are aging, high-cost operations that will require substantial investment to maintain their competitiveness over time.

For these reasons, we have a shorter than usual investment horizon for Bluescope. Our analysis now suggests there is less cyclical upside potential for the company going forward, while earnings momentum has plateaued. Moreover, the volatility of the share price adds risk to the Portfolio, and the dividend yield is weak.

That said, despite their rally, the shares remain among the cheapest of large Australian companies, relative to earnings.

We have substantially reduced the Portfolio’s position, crystallising a strong capital gain but retaining a more modest exposure that may benefit from continued growth in global steel demand, and a further realignment of the market’s valuation.

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 July 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 July 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

Property management

One of the features of NZ Funds’ wide investment mandate is the use of portfolio management tools and strategies that mitigate downside risk.

As an asset class, property is vulnerable to the rising trend in the global interest rate environment. This is partly because the rental income stream received from property is relatively fixed in nature – similar in many ways to the fixed coupon payments made by a bond. In addition, property investments are generally leveraged, so rising market interest rates increase the size of financing bills and amplify the negative impact of any rise in interest rates.

In this Portfolio we have recently sought to mitigate risk from rising interest rates by investing in ‘property plus’ – companies which offer exposure to property, but also have characteristics or sectoral advantages that will allow them to swim against the tide of higher interest rates.

These include online competition-insulated Store Properties, Sky City with its gaming revenues, CaixaBank, whose property exposure underlies its main banking business, and Digital Realty, which houses the hardware supporting cloud computing.

Examination of long-term trends shows listed property securities in the United States have typically been valued at yield 3% to 4% above the yield offered by the US 10-year Government bond. Property prices are also very directly correlated to the direction of interest rate changes.

Given this relationship we have also looked to further protect the Portfolio from rising interest rates by adding a short position in United States Government 10-year bond futures. This short position provides a degree of hedging against bond price falls in a rising interest rate environment and in turn acts as ‘proxy’ protection against falls in property prices.

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.
† Source: FTSE NAREIT All Equity REITS Total Return Index.

Performance

Performance since inception (31 October 2008) to 31 July 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 July 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 rigged market

United States shale oil producers are much more nimble in their ability to drill wells than the oil majors such as Total, Exxon, and Mobil, with their vast, multi-year development projects.

The ‘shales’ have been exploiting this ability to a degree that has considerably surprised the markets. At the beginning of the year, long-dated futures markets indicated expectations were for Brent crude to rise to $US60 a barrel this year.

Today, the expectation appears to be closer to $US50 a barrel, with risks possibly remaining to the downside.

One thing that has surprised observers is the number of new shale rigs being deployed. Looking at one United States production region alone – Permian – the rig count has risen from 150 to 400 in little over a year1.

Another surprise is the efficacy of the new technology shale oil producers are using. Since 2015, new-well production per rig has rocketed.

Shale oil producers are the price-setting ‘marginal producers’. It is becoming increasingly evident this will continue to be the case given the number of non-OPEC, non-shale production projects already in the pipeline. Shale oil production alone can balance the market for the next two or three years.

Despite continued weak prices, shale producers are generating good amounts of cash and cementing their position in the United States oil production picture.

Despite reducing our weighting to the energy sector in this Portfolio, we maintain an exposure to the inflation-sensitive commodities and energy sectors which provide a hedge against inflation longer term. However, given a shift in our view of the future oil price, we have reduced exposure to oil majors and increased exposure to shale oil and gas producers.

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 Energy Information Agency Drilling Productivity Report, July 2017.
* Source: Energy Information Agency Drilling Productivity Report, July 2017.

Performance

Performance since inception (31 October 2008) to 31 July 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 July 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

A drain on resources

China’s June-quarter gross domestic product (GDP) growth hit 6.9%, topping both market expectations and the Chinese government’s target.

What is more, this occurred during a period in which the government has been making a significant effort to curb credit growth, has cracked down both on ‘shadow banking’ anomalies and on corruption, and has been shutting down old and polluting industrial capacity. This crack-down has been most evident in steel mills where the Chinese government is trying to close down inefficient mills that produce sub-standard steel.

This Portfolio has been positioned to capture China’s positive new direction through a 20% exposure to the world’s leading resource companies, such as Rio Tinto and Freeport McMoRan. The iron ore that Rio Tinto mines, for example, has a high level of iron (around 64%) and is ideal for high quality, efficient, steel production.

While the market has been focused on United States politics and the inability of the Trump administration to pass legislation, China continues to spend large amounts on infrastructure. The United States is still expected to increase infrastructure spending, but this will be minor compared to China’s spend.

Later this year the 19th National Congress of the Communist Party of China will determine the composition of the Politburo, and it is anticipated that Xi Jinping will seek a further term as Party General Secretary. It can be surmised that the Chinese government will exert itself to ensure the economy runs smoothly at least until then. It will also provide the government added incentives to modernise the economy and improve the population’s standard of living.

Investment in One Belt, One Road (OBOR) initiatives will ramp up steadily over the coming years. OBOR, a key plank of President Xi’s long-term economic strategy, aims to develop a chain of links spanning Asia from China to Europe, and will consume vast amounts of materials and resources during construction.

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 July 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 July 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

Winter of opportunity

A consensus view prevails that the stage is set for a prolonged period of demand strength for industrial commodities such as iron ore and copper. Much of this optimism rests on China’s industrial renewal and ambitious economic plans (see this month’s Portfolio Insight for the Core Growth Portfolio).

We certainly agree. However, less attention is paid to the seasonal cyclicality of industrial commodity prices within this broad trend.

Commodities are a ‘current market’ in which pricing is set largely by supply and demand, and by inventory levels. Those buying physical stock today generally need to use it (metaphorically speaking) tomorrow, and must pay the current market price.

This stands in contrast to ‘predictive’ equity markets, which are driven by views of companies’ future earnings potential.

Chinese demand for commodities has been a dominating factor since 2009. Since then, we have observed a marked trend of seasonality in commodity prices which, on average, appreciate by more in the second half of the calendar year than they do in the first.

Prices for copper, for example, have on average risen by 10% in the second half, but only 3% in the first half. Iron ore prices have declined by 4% in the first half, but have risen by 9% in the second half.

The dominant factor here is the coldness of Chinese winters, during which rivers freeze and snow covers the land from Shanghai northwards. Transport infrastructure more or less closes down, and it becomes expensive to move bulk goods to industrial sites.

For this reason, Chinese industrial producers start to stockpile a winter’s worth of raw materials as the northern summer comes to an end.

This year, the trend has started early. Iron ore stood at $US70 a tonne in January, retreated to $US50 a tonne, but has now regained the $US70 a tonne price level.

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 (7 November 2011) to 31 July 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 July 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

Cash is King

“Profit is a matter of opinion. Cash is a matter of fact.” This observation is frequently attributed to Warren Buffett; in fact, it has been around since at least the 1890s, and nobody knows who said it first.

It is an underlying tenet of the thinking of LSV, the Chicago-based global shares investor which manages around half the assets held in this Portfolio.

LSV uses a quantitative investment approach, choosing undervalued shares with the potential for medium-term appreciation. In particular, it examines the quantum of cash a company is generating relative to its share price.

LSV was founded in 1994 by three professors of finance – Josef Lakonishok, Andrei Shleifer and Robert Vishny. Lakonishok still heads the business as Chief Executive and Chief Investment Officer. The manager was established after the three professors undertook research and wrote a paper showing that buying a portfolio of unloved cashflow positive companies would over time outperform. They were so confident their research was right, they established the company to prove it.

This Portfolio is invested in LSV’s Concentrated Fund. The repository of their ‘best ideas’, it nonetheless holds around 80 positions, following country or sector index weights as best they can, and therefore looking to add value by company selection. In essence, they look to find the best-valued companies within a sector or country.

At present, their largest holdings are pharmaceutical company Pfizer, aircraft maker Boeing and electronics giant Samsung.

In the current equity market environment LSV have underperformed the global index as they have not held loss-making ‘story’ companies (such as Tesla, which is now the most valuable car company in the world), although they have nonetheless delivered excellent returns over the longer 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.
* Source: LSV, MSCI, global equity markets are represented by MSCI ACWI in NZD index.

Performance

Performance since inception (31 October 2008) to 31 July 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 July 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

A contrarian buy

The Australian retail sector is seriously out of vogue at present. Share prices have been hit by fears around the imminent market entry of online retailing behemoth Amazon, which has announced it will set up local distribution centres promising same-day delivery of online orders.

This pessimism has provided an attractive entry point into Wesfarmers, the owner of the Coles supermarket chain, Australia’s second-largest behind Woolworths, and Bunnings, Australasia’s largest home improvement chain. Both businesses are stable, defensive, and ostensibly well managed.

Bunnings is particularly attractive, having achieved strong sales growth and high and stable profit margins over a sustained period. Management now have an opportunity in the United Kingdom to build a scale business, and create significant value for shareholders, with the purchase of the underperforming Homebase hardware chain. If Bunnings can successfully infuse its business model into Homebase, it has the potential to develop it into an operation to rival Bunnings’ current $A18 billion valuation (our estimate).

In grocery, the two majors are kept honest by competition from German retailer Aldi, which opened its first Australian store in 2001 and now has 470. There is room for everybody; the Australian grocery market has typically grown by around 3% a year.

We also think the threat from Amazon to Wesfarmers’ key businesses has been a little overstated. Coles already has an online shopping business. And although 30% of Australians say they’d be interested in grocery shopping online, only 3% currently do1.

But the market is worried, and Wesfarmers’ shares are trading at the bottom of their five-year range. They offer a dividend yield in excess of 5%, and good value relative to competitor Woolworths and to the rest of the Australian market. We’re proposing we may be at ‘peak Amazon’ (in terms of hype) and added a position to the Portfolio last month.

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 Amazon Fresh faces uphill battle in Australia, www.news.com.au, 1 May 2017.
* Source: Wesfarmers company data, NZ Funds calculations.

Performance

Performance since inception (31 October 2008) to 31 July 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 July 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

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Wellington 6011

PO Box 2697
Wellington 6140

04 473 7701
0800 697 526

Christchurch

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Burnside
Christchurch 8053

PO Box 1686
Christchurch Mail Centre
Christchurch 8140

03 366 9088
0800 697 526

Timaru

Level 1
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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
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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


New Zealand Funds Management Limited is the issuer of the NZ Funds KiwiSaver Scheme, the NZ Funds Managed Portfolio Service and the NZ Funds Managed Superannuation Service. A product disclosure statement for each of the NZ Funds KiwiSaver Scheme, the NZ Funds Managed Portfolio Service, and the NZ Funds Managed Superannuation Service is available on this website or you may request a copy by contacting us.