October 2021
October has a bit of a track record in financial markets for being a difficult month in terms of returns. Unfortunately, this return pattern proved to be true for Income Generator as the Portfolio declined by -2.2%, the second-worst monthly return since inception. Three factors drove this recent negative return. Local New Zealand shares struggled, with only two companies out of the 11 held recording a positive return for the month.
The only local name to shine was Infratil which was higher after they announced the establishment of an Asian focused renewable energy business. The Australian part of the Portfolio fared better with four of the seven names up over the month. However, as a whole, the Australian Portfolio ended down for the month.
The most important driver of return was the interest rate overlay. We have spoken in the past that several of the shares held in the Portfolio have predictable ‘bond-like’ earnings. This makes them attractive for Income Generator, but also means that their valuation is influenced by the level of interest rates.
Consequently, an interest rates overlay has been held in the Portfolio to provide an added level of protection. This protection worked well when interest rates were higher, but a sharp decline during the last week of October saw protection become something of an anchor which dragged the strategy backwards.
There were no changes to the shares held over the month although a hybrid bond issued by Kiwibank was added. The term &lquo;hybrid’ means it is a security that sits somewhere between a standard bond and shares. As such, it has a risk and return profile that is similar to shares combined with a collar strategy.
Past performance is not an indication of future returns.
Year-to-date Return
31 October 2021
Monthly Return
October 2021
Total Return p.a.
Since inception
22 October 2020
Interest rates are low. At NZ Funds, we designed Income Generator to address that.
Income Generator is a new fund, invested primarily in premium New Zealand and Australian dividend-paying shares. It passes these dividends on to you as regular income.
The risk of fluctuating share prices is reduced through the use of tools including put and call options which reduce the fund's volatility. This means Income Generator is for investors who are willing to take on some risk, but do not wish to be fully exposed to the volatility of shares.
We expect Income Generator will become a core allocation in moderate to higher risk investment portfolios, and become an essential tool for New Zealanders with savings to invest.
Income Generator has an expected average return of around 4% ‐ 7% per annum, after fees before tax, on a suggested minimum investment term of 5 years*. It has a risk indicator of 4 – classing it as medium to high volatility.
* Past performance is not an indication of future returns. Expected average annual returns are based on modelled returns only, which may not be an indicator of future returns. For more information on the calculation of expected average annual returns, see the 'Other Material Information' document available on the Disclose website.
Level 16, 21 Queen Street, Auckland 1010, New Zealand.
New Zealand Funds Management Limited is the Issuer of the NZ Funds Income Generator.
A copy of the NZ Funds Income Generator Product Disclosure Statement is available on request or by visiting the NZ Funds website at www.nzfunds.co.nz.
