Performance

Core Cash Portfolio

• Returns are stated after Portfolio fees and expenses, but before any advisory fees or investor tax. Past performance is not necessarily an indication of future returns.

• Cumulative returns.

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 in the previous 12 months or since inception of the Portfolio if it has not existed for 12 months.

• This is the annualised standard deviation calculated from weekly returns of the Portfolio over the 5 years ending 31 December 2020. For more details on the Portfolio’s Maximum Decline and Volatility please contact NZ Funds.

Note: Rounding may affect some numbers.

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. 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.

Regular readers will clearly know our view that interest rates are too low, and they need to move higher, as we have talked at length on this subject. Here in New Zealand we have had the luxury of seeing first-hand how quickly life can return to normal and how strong the resulting demand has been across many different industries. This experience has helped to form our high conviction view for higher interest rates.

This view was rewarded in February as the bell-weather 10-year US government bond increased significantly from 1.06% to 1.40%. Bond prices fall when interest rates rise so this sharp increase meant that many fixed income indices recorded negative returns for the month.

Given our high-conviction view, the Portfolios were well positioned for this move and significantly outperformed the market benchmarks as they increased by between 7% and 8% in February. Looking forward, while we do not expect the moves to be as sharp, the trend remains for higher interest rates as we are only now getting back to levels seen prior to the onset of the pandemic in March last year.

Core Income Portfolio

• Returns are stated after Portfolio fees and expenses, but before any advisory fees or investor tax. Past performance is not necessarily an indication of future returns.

• Cumulative returns.

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 in the previous 12 months or since inception of the Portfolio if it has not existed for 12 months.

• This is the annualised standard deviation calculated from weekly returns of the Portfolio over the 5 years ending 31 December 2020. For more details on the Portfolio’s Maximum Decline and Volatility please contact NZ Funds.

Note: Rounding may affect some numbers.

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. Swaptions notional value is currently $102,457,836.
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.

Regular readers will clearly know our view that interest rates are too low, and they need to move higher, as we have talked at length on this subject. Here in New Zealand we have had the luxury of seeing first-hand how quickly life can return to normal and how strong the resulting demand has been across many different industries. This experience has helped to form our high conviction view for higher interest rates.

This view was rewarded in February as the bell-weather 10-year US government bond increased significantly from 1.06% to 1.40%. Bond prices fall when interest rates rise so this sharp increase meant that many fixed income indices recorded negative returns for the month.

Given our high-conviction view, the Portfolios were well positioned for this move and significantly outperformed the market benchmarks as they increased by between 7% and 8% in February. Looking forward, while we do not expect the moves to be as sharp, the trend remains for higher interest rates as we are only now getting back to levels seen prior to the onset of the pandemic in March last year.

Global Income Portfolio

• Returns are stated after Portfolio fees and expenses, but before any advisory fees or investor tax. Past performance is not necessarily an indication of future returns.

• Cumulative returns.

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 in the previous 12 months or since inception of the Portfolio if it has not existed for 12 months.

• This is the annualised standard deviation calculated from weekly returns of the Portfolio over the 5 years ending 31 December 2020. For more details on the Portfolio’s Maximum Decline and Volatility please contact NZ Funds.

Note: Rounding may affect some numbers.

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. Swaptions notional value is currently $104,322,196.
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.

The Absolute Return Strategy, which comprises a significant portion of the Inflation Category, had a strong month in February returning 6.49%. The portfolio made strong returns across shares, credit and commodities.

The short United States government bond position that performed well in January continued to generate strong returns in the Absolute Return Strategy as US interest rates pushed higher. This move in interest rates also had a flow-on effect in share markets.

High-growth companies including technology shares sold off, while value and cyclical companies performed well. When interest rates increase, share investors tend to favour businesses with strong near-term cash flows that benefit from economic growth, such as energy companies, commodities businesses and banks. To create room to buy these companies they tend to sell growth businesses where the cash flows are expected many years into the future. These tend to be technology, healthcare or other businesses that display strong long-term growth trends.

The Absolute Return Strategy positioned its share portfolio to benefit from this rotation out of growth businesses and into value/cyclical businesses, which contributed significantly to returns in February. The Strategy short-sold (profits when the share price falls) several non-profitable technology businesses and bought long Australian and United States banks, as well as some commodity businesses like Rio Tinto. This trade paid off by generating positive returns on both the short side and the long side.

Core Inflation Portfolio

• Returns are stated after Portfolio fees and expenses, but before any advisory fees or investor tax. Past performance is not necessarily an indication of future returns.

• Cumulative returns.

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 in the previous 12 months or since inception of the Portfolio if it has not existed for 12 months.

• This is the annualised standard deviation calculated from weekly returns of the Portfolio over the 5 years ending 31 December 2020. For more details on the Portfolio’s Maximum Decline and Volatility please contact NZ Funds.

Note: Rounding may affect some numbers.

1. Where a strategy is shown, the asset class reflects the predominant assets in the strategy. The strategy may include other assets including cash.
2. 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.
3. As at the date of the security listings, the majority of the assets of the Strategy were held in this asset class. This Strategy may also hold assets in other asset classes.
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.

The Absolute Return Strategy, which comprises a significant portion of the Inflation Category, had a strong month in February returning 6.49%. The portfolio made strong returns across shares, credit and commodities.

The short United States government bond position that performed well in January continued to generate strong returns in the Absolute Return Strategy as US interest rates pushed higher. This move in interest rates also had a flow-on effect in share markets.

High-growth companies including technology shares sold off, while value and cyclical companies performed well. When interest rates increase, share investors tend to favour businesses with strong near-term cash flows that benefit from economic growth, such as energy companies, commodities businesses and banks. To create room to buy these companies they tend to sell growth businesses where the cash flows are expected many years into the future. These tend to be technology, healthcare or other businesses that display strong long-term growth trends.

The Absolute Return Strategy positioned its share portfolio to benefit from this rotation out of growth businesses and into value/cyclical businesses, which contributed significantly to returns in February. The Strategy short-sold (profits when the share price falls) several non-profitable technology businesses and bought long Australian and United States banks, as well as some commodity businesses like Rio Tinto. This trade paid off by generating positive returns on both the short side and the long side.

Property Inflation Portfolio

• Returns are stated after Portfolio fees and expenses, but before any advisory fees or investor tax. Past performance is not necessarily an indication of future returns.li>

• Cumulative returns.

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 in the previous 12 months or since inception of the Portfolio if it has not existed for 12 months.

• This is the annualised standard deviation calculated from weekly returns of the Portfolio over the 5 years ending 31 December 2020. For more details on the Portfolio’s Maximum Decline and Volatility please contact NZ Funds.

Note: Rounding may affect some numbers.

1. Where a strategy is shown, the asset class reflects the predominant assets in the strategy. The strategy may include other assets including cash.
2. 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.
3. As at the date of the security listings, the majority of the assets of the Strategy were held in this asset class. This Strategy may also hold assets in other asset classes.
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.

The Absolute Return Strategy, which comprises a significant portion of the Inflation Category, had a strong month in February returning 6.49%. The portfolio made strong returns across shares, credit and commodities.

The short United States government bond position that performed well in January continued to generate strong returns in the Absolute Return Strategy as US interest rates pushed higher. This move in interest rates also had a flow-on effect in share markets.

High-growth companies including technology shares sold off, while value and cyclical companies performed well. When interest rates increase, share investors tend to favour businesses with strong near-term cash flows that benefit from economic growth, such as energy companies, commodities businesses and banks. To create room to buy these companies they tend to sell growth businesses where the cash flows are expected many years into the future. These tend to be technology, healthcare or other businesses that display strong long-term growth trends.

The Absolute Return Strategy positioned its share portfolio to benefit from this rotation out of growth businesses and into value/cyclical businesses, which contributed significantly to returns in February. The Strategy short-sold (profits when the share price falls) several non-profitable technology businesses and bought long Australian and United States banks, as well as some commodity businesses like Rio Tinto. This trade paid off by generating positive returns on both the short side and the long side.

Equity Inflation Portfolio

• Returns are stated after Portfolio fees and expenses, but before any advisory fees or investor tax. Past performance is not necessarily an indication of future returns.

• Cumulative returns.

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 in the previous 12 months or since inception of the Portfolio if it has not existed for 12 months.

• This is the annualised standard deviation calculated from weekly returns of the Portfolio over the 5 years ending 31 December 2020. For more details on the Portfolio’s Maximum Decline and Volatility please contact NZ Funds.

Note: Rounding may affect some numbers.

1. Where a strategy is shown, the asset class reflects the predominant assets in the strategy. The strategy may include other assets including cash.
2. 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.
3. Swaptions notional value is currently $51,614,608.
4. As at the date of the security listings, the majority of the assets of the Strategy were held in this asset class. This Strategy may also hold assets in other asset classes.
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.

The major share market indices reached record highs in February; however, they pulled back sharply at the end of the month, leaving most with modest gains. Despite this, the NZ Funds Growth Category was positioned to take advantage of a change in market expectations for growth, inflation and interest rates, leading to significant outperformance.

We saw economic growth coming through stronger than the market was expecting. This led us to believe the market was underestimating the trajectory of interest rates. Taking a short position in 5-year and 10-year government bonds in December 2020 meant the Category would benefit from any rise in interest rates and hedge out the risk of a share market sell-off should interest rates increase.

This generated strong performance for the month as 5-year and 10-year interest rates increased 33 bps and 35 bps respectively. We believe there is more to come with expectations that the United States 10-year interest rate will reach 2.0% by year end.

At the same time, commodities also performed well following expectations that the reopening of the global economy will be followed by strong demand across both hard and soft commodities. This leads to commodity price increases as the increase in demand was not able to be met by lacklustre supply.

Economic signals, as well as the accelerated vaccine rollout in the United States and better than expected fourth-quarter corporate earnings, improved as the month wore on. However, as long-term interest rates increased, placing a greater discount on future earnings, investors heavily favoured value shares over growth shares. We have an overweight position in value across the Category including in Australian banks.

Core Growth Portfolio

• Returns are stated after Portfolio fees and expenses, but before any advisory fees or investor tax. Past performance is not necessarily an indication of future returns.

• Cumulative returns.

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 in the previous 12 months or since inception of the Portfolio if it has not existed for 12 months.

• This is the annualised standard deviation calculated from weekly returns of the Portfolio over the 5 years ending 31 December 2020. For more details on the Portfolio’s Maximum Decline and Volatility please contact NZ Funds.

Note: Rounding may affect some numbers.

1. Where a strategy is shown, the asset class reflects the predominant assets in the strategy. The strategy may include other assets including cash.
2. 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.
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.

The major share market indices reached record highs in February; however, they pulled back sharply at the end of the month, leaving most with modest gains. Despite this, the NZ Funds Growth Category was positioned to take advantage of a change in market expectations for growth, inflation and interest rates, leading to significant outperformance.

We saw economic growth coming through stronger than the market was expecting. This led us to believe the market was underestimating the trajectory of interest rates. Taking a short position in 5-year and 10-year government bonds in December 2020 meant the Category would benefit from any rise in interest rates and hedge out the risk of a share market sell-off should interest rates increase.

This generated strong performance for the month as 5-year and 10-year interest rates increased 33 bps and 35 bps respectively. We believe there is more to come with expectations that the United States 10-year interest rate will reach 2.0% by year end.

At the same time, commodities also performed well following expectations that the reopening of the global economy will be followed by strong demand across both hard and soft commodities. This leads to commodity price increases as the increase in demand was not able to be met by lacklustre supply.

Economic signals, as well as the accelerated vaccine rollout in the United States and better than expected fourth-quarter corporate earnings, improved as the month wore on. However, as long-term interest rates increased, placing a greater discount on future earnings, investors heavily favoured value shares over growth shares. We have an overweight position in value across the Category including in Australian banks.

Global Equity Growth Portfolio

• Returns are stated after Portfolio fees and expenses, but before any advisory fees or investor tax. Past performance is not necessarily an indication of future returns.

• Cumulative returns.

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 in the previous 12 months or since inception of the Portfolio if it has not existed for 12 months.

• This is the annualised standard deviation calculated from weekly returns of the Portfolio over the 5 years ending 31 December 2020. For more details on the Portfolio’s Maximum Decline and Volatility please contact NZ Funds.

Note: Rounding may affect some numbers.

1. Where a strategy is shown, the asset class reflects the predominant assets in the strategy. The strategy may include other assets including cash.
2. 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.
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.

The major share market indices reached record highs in February; however, they pulled back sharply at the end of the month, leaving most with modest gains. Despite this, the NZ Funds Growth Category was positioned to take advantage of a change in market expectations for growth, inflation and interest rates, leading to significant outperformance.

We saw economic growth coming through stronger than the market was expecting. This led us to believe the market was underestimating the trajectory of interest rates. Taking a short position in 5-year and 10-year government bonds in December 2020 meant the Category would benefit from any rise in interest rates and hedge out the risk of a share market sell-off should interest rates increase.

This generated strong performance for the month as 5-year and 10-year interest rates increased 33 bps and 35 bps respectively. We believe there is more to come with expectations that the United States 10-year interest rate will reach 2.0% by year end.

At the same time, commodities also performed well following expectations that the reopening of the global economy will be followed by strong demand across both hard and soft commodities. This leads to commodity price increases as the increase in demand was not able to be met by lacklustre supply.

Economic signals, as well as the accelerated vaccine rollout in the United States and better than expected fourth-quarter corporate earnings, improved as the month wore on. However, as long-term interest rates increased, placing a greater discount on future earnings, investors heavily favoured value shares over growth shares. We have an overweight position in value across the Category including in Australian banks.

Dividend and Growth Portfolio

• Returns are stated after Portfolio fees and expenses, but before any advisory fees or investor tax. Past performance is not necessarily an indication of future returns.

• Cumulative returns.

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 in the previous 12 months or since inception of the Portfolio if it has not existed for 12 months.

• This is the annualised standard deviation calculated from weekly returns of the Portfolio over the 5 years ending 31 December 2020. For more details on the Portfolio’s Maximum Decline and Volatility please contact NZ Funds.

Note: Rounding may affect some numbers.

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. 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.