Strategies & Performance

Income Strategy

Insights

KiwiSaver Income Strategy Insights Chart

Growing pains

We have sold our holding of the April 2025 bonds of Valeant Pharmaceuticals, a Canadian drug company.

We bought the holding last year at an excellent yield of around 11%. Valeant was initially an aggressive acquirer of other pharmaceutical companies but this strategy ran into problems when the United States government focused on health care costs. The share price fell and a number of the company’s senior executives were replaced. It was around this period that we decided to buy the bond, given its attractive yield and the company’s portfolio of pharma companies. In purchasing the bond, we recognised the company had challenges but felt the yield more than compensated.

The company’s key challenge is that, as a consequence of its buying spree, it has over $US28 billion of debt. To reduce this debt the company has decided to sell some of its assets and has identified some $US8 billion worth of non-core assets that can be sold, in addition to the $US4 billion it has already sold.

The sale process is taking longer than expected, and recently key shareholders sold their shares in the company.

Valeant still has a number of positive attributes, including some promising new drugs. However, the transition now looks likely to take longer than expected, and will leave Valeant with a relatively small equity buffer – around $US3 billion – against its debt.

Our view is that these factors have tilted Valeant’s risk/return proposition away from the unsecured bonds we were holding. However Valeant have issued new secured bonds, which we believe are more than two times covered in a worst case scenario. We have therefore sold the unsecured bonds and will continue our research into the secured bonds with a view to purchasing them.

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

Performance

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

NZ Funds KiwiSaver Scheme Income Strategy

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

Comparative Index

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

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

Different calculation methodology

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

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

Maximum Decline and Risk

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

Note: Rounding may affect some numbers.

Portfolios


NZ Funds KiwiSaver Scheme Income Strategy

Indicative Strategy as at 31 March 2017
KiwiSaver Income Strategy Portfolio Table

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

Overview

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

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

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

Inflation Strategy

Insights

KiwiSaver Inflation Strategy Insights Chart

Village life

Last month we met with retirement village company Metlifecare’s newish CEO, Glen Sowry, to catch up on his strategy refresh outlined in a previous presentation to investors.

An accelerated village development pipeline forms part of this strategy. In the last year Metlifecare has bought and announced development plans for a three hectare site at Albany in Auckland and a site at Red Beach on the Hibiscus Coast north of Auckland.

The company aims to double the delivery of new units during the 2017 financial year, building up to 300 new units a year by 2019.

However, we were pleased to hear Metlifecare is taking a circumspect approach to land acquisition. While management have investigated various land purchase opportunities, few have ‘stacked up’ as investment cases.

Relatively high land prices are only part of the problem. The company also conducts research on the demographics of a potential site and its ‘catchment area.’ This must contain a critical mass of retirees, or those approaching retirement, who own their own homes.

Metlifecare’s shares, held in this Strategy within the Dividend & Growth Strategy, are currently trading at a substantial discount to those of its peers, at around 1x net tangible asset value, compared with more than 2x for Ryman Healthcare and Summerset. They therefore offer the prospect of material capital appreciation if management can successfully execute their growth strategy.

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

Performance

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

NZ Funds KiwiSaver Scheme Inflation Strategy

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

Comparative Index

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

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

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

Different calculation methodology

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

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

Maximum Decline and Risk

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

Note: Rounding may affect some numbers.

Portfolios


NZ Funds KiwiSaver Scheme Inflation Strategy

Indicative Strategy as at 31 March 2017
KiwiSaver Inflation Strategy Portfolios Table

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

Overview

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

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

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

Growth Strategy

Insights

KiwiSaver Growth Strategy Insights Chart

Where is the grass greener?

There are some early indicators the tide may have turned for the New Zealand dollar – Australian dollar cross rate, and that the Kiwi will return over time towards its long-term historical average of $A0.85.

The Kiwi has long traded in a range of $A0.75 to $A0.95, driven by interest rate and growth differentials between the two countries.

Gross domestic product data has provided a historical indicator, but there are a number of ‘fuzzy’ indicators that provide a picture of where the two currencies are headed.

One is migration. A theme of the last few years, underpinned by the poor fortunes of Australia’s metals and commodity producers since 2011, has been a long tail of New Zealanders returning home to ‘greener grass’. With a new resource boom in its initial stages, there are early signs that the migration flows between Australia and New Zealand are starting to turn in Australia’s favour.

Another is house prices, again driven partly by migration. While New Zealand’s ascent appears to have flattened out somewhat, Australians continue to complain of diminishing affordability.

The interest rate differential is likely to widen too. Our view is that the Reserve Bank of Australia is likely to raise interest rates this year, while we have pushed out our expectation of a Reserve Bank of New Zealand rise until early next year, due to the dynamics around the appointment of a new Governor.

In this Strategy, we have taken a position favouring the Australian dollar. This means the Strategy will benefit if the cross rate moves back to its long-term average of A$0.85.

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

Performance

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

NZ Funds KiwiSaver Scheme Growth Strategy

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

Comparative Index

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

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

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

Maximum Decline and Risk

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

Note: Rounding may affect some numbers.

Portfolios


NZ Funds KiwiSaver Scheme Growth Strategy

Indicative Strategy as at 31 March 2017
KiwiSaver Growth Strategy Portfolio Table

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

Overview

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

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

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

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

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

Disclaimer

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

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.

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For further information on any of the Portfolios included on the NZ Funds Website or to request a copy of either the NZ Funds Managed Portfolio 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.

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Jurisdiction

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



OUR OFFICES

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Complaints


Client complaints

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

If you have a complaint contact us:


Complaints Handling Officer
New Zealand Funds Management Limited
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