Summer New Zealand Fixed Interest fund performance update as at 31 January 2017.
Unit price (as at 31 January 2017): $0.9851
Date the fund started: 19 September 2016
For information on fees, see our Fees page.
Further information can be found in the product disclosure statement.
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Fund returns are calculated net of fund charges, trading expenses and accrued tax for a New Zealand resident individual paying tax at the highest Prescribed Investor Rate (28%).
See the New Zealand Fixed Interest page for the Summary of investment objective and strategy.
January was a positive month for investors in Summer New Zealand Fixed Interest, which delivered a return of 0.21% for the period.
Bond markets have had a torrid time post the election of Donald Trump as the next President of the United States.
The general consensus is that, under new leadership, the United States Government will embark on a programme of fiscal expansion and corporate tax cuts in order to stimulate business activity and create jobs, which we and the market in general, expect to lead to an increase in American inflation.
Authorities in the United States are playing their part to manage inflation and inflation expectations by forecasting a series of hikes to official cash rates; tightening monetary policy typically acts as a foil to inflation.
On this basis we anticipate further increases to official interest rates in the United States over the next few years, to be delivered in an orderly and gradual manner by the United States Federal Reserve as the regulator actively manages domestic inflation.
Locally, our view is slightly different.
Here, we expect the Reserve Bank of New Zealand to maintain accommodative monetary policy, and we see little prospect of an increase in our Official Cash Rate (OCR) over the course of this year; the market differs slightly with our thinking, expecting to see a 0.25% hike to the OCR by early November.*
We do acknowledge that New Zealand interest rates and bond yields are correlated to movements in interest rates in the United States, and on this basis we believe the current bout of volatility in New Zealand bond yields will continue into the first quarter of the new year, at least.
As such, we will continue with our defensive positioning; orientating away from longer-dated bonds, concentrating investments into medium tenor securities and accumulating cash. Our logic is simple; a strategy to link our yield curve positioning to New Zealand monetary policy.
In looking forward, we are starting to see opportunities in subordinated bonds that are yielding in excess of 5% and will be interested in exposure to longer-dated senior bonds if they also offer similar yields.
* Overnight Index Swap Pricing, Westpac Banking Corporation, 30 January 2017
For more information on the Summer New Zealand Fixed Interest fund, read the latest quarterly fund update.
This is not a recommendation to buy or sell any financial product and does not take your personal circumstances into account. All opinions reflect our judgement on the date of communication and may change without notice. Past performance is not a reliable guide to future performance. We recommend you take financial advice before making investment decisions. We have prepared this web page in good faith based on information obtained from other sources, but we do not guarantee the accuracy of that information. We do not make any representation or warranty (express or implied) that this web page is accurate, complete, or current and to the maximum extent permitted by law disclaim any liability for loss which may be incurred by any person relying on this web page.