Strategies & Performance

Income Strategy

Insights

KiwiSaver Income Strategy Insights Chart

Engineering aluminium

Arconic, the metals engineering and manufacturing spin-off from United States-based aluminium giant Alcoa, has been much in the news recently as activist investor Elliott Management ousted former Chairman and Chief Executive Klaus Kleinfeld.

His likely successor is Larry Lawson, former CEO of Arconic competitor Spirit AeroSystems, once a non-compete clause expires next year.

The Strategy invested in Arconic’s 2027 bonds in March, and the ongoing leadership battle does not dent our faith in the stability of the underlying business.

Alcoa split into two publicly-traded companies in November last-year – Alcoa Upstream, a commodity aluminium producer, and Arconic.

Arconic is the downstream business, making sheet and rolled aluminium and higher value-added engineered products for aerospace, transportation, construction and power generation end users. Revenue for the 2016 financial year was US$12.4 billion and was concentrated in North America and Europe.

Arconic has strong relationships with the leaderships of its biggest customers which include Boeing, Ford, General Electric, and United Technologies. These companies are reportedly drawn to Arconic’s commitment to research and development1.

For Arconic, these relationships buy long life cycles for its products. It supplies parts for the next generation of aeroplanes and motor vehicles, which could be on the market for decades.

The company has stable, moderate sales growth. Management has committed to a business improvement programme which will, over the current year, focus on improving its EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) margin, lifting return on net assets, repaying debt and limiting capital expenditure.

The 2027 bonds are currently yielding 5.75% in New Zealand dollar terms. Their inclusion in the Strategy adds exposure to a company with a diverse business base, and stable and improving sales and earnings margins.


1. Inside the activist battle that felled Arconic’s Klaus Kleinfeld, The Wall St Journal, 17 April 2017.
* Source: Bloomberg.

Performance

Performance since inception (31 October 2010) to 30 April 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 30 April 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

Interest rates remain low despite higher inflation

As the September general election approaches, the monetary policy targets of the Reserve Bank of New Zealand (RBNZ) are once again coming under scrutiny. Both Labour and New Zealand First want the central bank to include the unemployment rate alongside its current focus on price stability.

The RBNZ operates under a Policy Targets Agreement with the Government, defining price stability as annual increases in the Consumers Price Index of between 1% and 3% on average over the medium term, with a focus on keeping future average inflation near the 2% target midpoint. The RBNZ has worked under this framework since the Reserve Bank of New Zealand Act 1989 was passed. Over this near thirty year period, they have been broadly successful. The days of high inflation and price freezes have been consigned to the history books.

As people have become used to low inflation, interest rates have fallen. This has been most notable over the last ten years where interest rates are at their lowest for over fifty years. Today, the Official Cash Rate (OCR) is at its lowest level since it was introduced in 1999. While we generally expect the next move in the OCR to be up, we do not think this will occur until next year, and then any cycle of increasing interest rates is likely to be reasonably muted. For example, we now feel the top of the next interest rate cycle may be 4.5%. Ten years ago this was considered the lowest the OCR could go.

This is good news for borrowers, such as mortgage holders, but bad news for savers.

In this Strategy, we have around a 19% exposure to interest rate sensitive assets. The returns we will get from this portion of the Strategy are in part dependent on the OCR, although we are able to achieve a higher return though detailed research. Nevertheless, there is a limit to the return we are able to generate from fixed interest. Reflecting this, the Strategy also has exposure to Australasian shares, and in particular to shares which pay stable dividends. The dividend return we are able to achieve from these companies is currently considerably higher than the OCR. In addition, we also receive capital gains as the shares appreciate over the long term. In a low interest rate environment this continues to be one of the most reliable ways of achieving stable income.

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, NZ Funds calculations.

Performance

Performance since inception (31 October 2010) to 30 April 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 30 April 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

Absolutely active

Devon Funds Management is a New Zealand-based manager headed by experienced investors Paul Glass and Slade Robertson.

Devon’s Absolute Fund is closed to new investors with NZ Funds being one of the few institutional investors in the fund. It has an ‘alpha’ approach – the antithesis of index investing – taking concentrated positions in Australasian shares, often mid-cap in size, on a ‘best ideas’ basis.

March was a good month for the fund, with two of its positions in lesser-known companies rallying strongly.

Devon has been a shareholder of Vista Group since it floated on the NZX in August 2014, at which time it already had revenues of $47 million. Vista got ‘a foot in the door’ of the global film industry with its cornerstone ticket sales software for cinemas. It has leveraged this into nine businesses supplying software for cinema management, film distribution, customer analytics, business intelligence, and predictive analytics. Revenue for the 2016 year grew by 35%, to $88.6 million.

The Vista shareholding in March comprised 9.1% of the Devon Absolute Fund.

GTN Limited (Global Traffic Network) is a Sydney-based broadcast media advertising platform that listed on the ASX in June 2016. It is one of the largest platforms in its three core geographies of Australia, Canada, and the United Kingdom, and is expanding into the United States and Brazil. GTN provides traffic reports to radio stations for broadcast during their news segments, in return for advertising slots before and after the report. In this way they are able to deliver large and frequent audiences to advertisers.

Revenue for the June 2016 year was A$166 million, and has increased 12% in the six months to December 2016. In March, the GTN holding comprised 6.2% of the Devon Absolute Fund.

The allocation to Devon complements the NZ Funds Dividend & Growth Strategy approach of focusing on companies with high dividend payments.

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 30 April 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 30 April 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
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Jurisdiction

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



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Complaints


Client complaints

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

If you have a complaint contact us:


Complaints Handling Officer
New Zealand Funds Management Limited
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