Balanced Fund

(Formerly Forsyth Barr Balanced Fund)

Overview

The fund aims to achieve positive long-term returns by selecting exposure across asset classes. Investors can expect moderate to high levels of movement up and down in value and to receive longer term returns that are lower than those of the Growth Fund.

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Unit Price

Month End Unit Price

As at 30 Apr 2022

0.9838 NZD

The unit prices shown do not take into account any adjustment for any accrued PIE tax that individual investors may need to pay on withdrawal. Buy/sell spreads may apply when transacting - there are currently none.

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Manager's Comment

Market Commentary

April saw a continuation of themes from the March quarter. Inflation repeatedly surprised to the upside and saw central banks rapidly move towards raising short term interest rates. The Ukrainian crisis has yet to be resolved, creating further risks to economic growth and supply chains globally. Whilst many markets began removing restrictions related to the Covid-19 pandemic, China has begun to impose tighter restrictions as Omicron takes hold there, creating further disruption.

These continued headwinds to economic growth saw investment markets generally deliver negative returns over April. Our cash holdings were helpful to total returns but all the other asset…

Market Commentary

April saw a continuation of themes from the March quarter. Inflation repeatedly surprised to the upside and saw central banks rapidly move towards raising short term interest rates. The Ukrainian crisis has yet to be resolved, creating further risks to economic growth and supply chains globally. Whilst many markets began removing restrictions related to the Covid-19 pandemic, China has begun to impose tighter restrictions as Omicron takes hold there, creating further disruption.

These continued headwinds to economic growth saw investment markets generally deliver negative returns over April. Our cash holdings were helpful to total returns but all the other asset classes delivered negative returns over the month. Higher interest rates do flow through to the future potential return for the fixed interest portion of the fund however.

Most of the Balanced Fund individual asset class portfolios continue to do well against their respective market indices, with the exception of the global equity portfolio. As announced last month, we are in the process of funding two new portfolio managers with the aim of improving the expected risk adjusted return characteristics of the global equity portfolio.

The New Zealand dollar, relevant for our portfolios with unhedged foreign currency exposures, fell against the US dollar but rose against the Australian dollar.

For further commentary on each of the asset classes within the Balanced Fund, please refer to the commentaries for each of the relevant single-asset class funds.

Portfolio Performance

The Balanced Fund delivered a gross return of -2.00% during April, approximating the fund’s market index return of -1.98%.

For the 12 months to the end of April the Balanced Fund delivered a gross return of -1.96%, underperforming the fund’s market index return of -1.32%.

Outlook

As the Ukrainian crisis has persisted, we are tempering our generally positive view of the global economy, and therefore the outlook for company profits. It appears likely that this new disruption to commodity supply – particularly energy and agriculture - along with further pandemic related lockdowns in China, will cause inflation to stay higher for longer than we previously expected.

Europe and Asia appear to be the worst effected from an economic growth perspective. Some economists debate the usefulness of higher interest rates when it is supply, rather than demand, that is the root of rising prices. It is clear however that rising prices are everywhere, wages are beginning to respond, and surveys of expected future inflation are drifting higher, forcing the central banks to respond.

The continued move higher in fixed interest rates sees both domestic and global fixed interest markets reflecting a more realistic view of the future outlook in our opinion. Fixed interest market valuations are therefore more attractive. Equity markets have fallen in tandem with higher interest rates, as fixed interest assets offer lower risk than equities and now offer more attractive returns relative to equity markets.

In early May our Asset Allocation committee met to discuss the recent moves in asset prices. At that meeting we chose to remain with a modest overweight to growth assets relative to income assets. Within the fixed interest investment class, we sold down some of our New Zealand fixed interest assets and invested that money into the global fixed interest assets. We continue to think investment markets will remain volatile in the near term.

Foreign currency exposures associated with international fixed interest are hedged to the New Zealand dollar. We actively manage the fund’s currency exposures associated with international and Australian equities, and listed property. As at 30 April 2022, these exposures represented 39.74% of the value of the fund. After allowing for foreign currency hedges in place, approximately 22.86% of the value of the fund was unhedged and exposed to foreign currency risk.

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Major Investments

As at 30 Apr 2022
Company name % of fund
Vanguard ESG US Stock ETF 11.17%
ANZ transactional bank account 8.60%
Vanguard ESG International Stock ETF 7.55%
Housing New Zealand 3.36% 12/06/2025 1.83%
NZ Govt Inflation Ind Bond 20/09/25 1.75%
New Zealand Local Government Funding Agency Ltd 14/04/2033 3.50% 1.60%
New Zealand Local Government Funding Agency Ltd 15/04/2027 4.50% 1.20%
Fisher & Paykel Healthcare Corporation Limited 1.18%
Westpac New Zealand 1.439% 24/02/2026 1.15%
BHP Group Limited 1.13%
Major holdings as % of total portfolio 37.16%
Total portfolio holdings 1917

Performance over time

Return Comparison

As at 30 Apr 2022
1 Month 3 Months 1 Year *3 Years *Since commenced operation
Net Fund Return 1 Month -1.79% 3 Months -2.80% 1 Year -2.90% *3 Years N/A *Since commenced operation -0.81%
Gross Fund Return 1 Month -2.00% 3 Months -2.69% 1 Year -1.96% *3 Years N/A *Since commenced operation 0.22%
Composite Index 1 Month -1.98% 3 Months -1.84% 1 Year -1.32% *3 Years N/A *Since commenced operation 0.94%

Net Fund Returns are calculated after deduction of fund charges, trading expenses and accrued tax for a New Zealand resident paying individual tax at the highest Prescribed Investor Rate (28%). Gross Fund Returns are calculated before deduction of taxes and fund charges but after deduction of trading expenses and including imputation credits where applicable. Market index returns do not have any deductions for fund charges, trading expenses or tax.

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Morningstar Performance

Morningstar is a leading global provider of independent investment research that ranks and reports on Funds within New Zealand and Australia. View the latest Fund Report for the Balanced Fund.

Fund update

As at 31 March 2022

This document tells you how the Balanced Fund has performed and what fees were charged. The document will help you to compare the fund with other funds. (Please note that this fund was previously known as the Forsyth Barr Balanced Fund, and that Fund Updates may refer to the fund by that name.)
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General Fund Information

Risk indicator

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The risk indicator is rated from 1 (low) to 7 (high). The rating reflects how much the value of the relevant fund’s assets goes up and down (volatility). A higher risk generally means higher potential returns over time, but more ups and downs along the way.

This fund started on 11 December 2020. We’ve calculated the risk indicator using market index returns data for periods before that date, and actual fund returns data afterwards. Using market index return data may make the risk indicator a less reliable indicator of how much fund values might go up and down in the future. See more information about the risks of investing in the Product Disclosure Statement.

Tactical asset allocation mix (as at 6 May 2022)

Cash and cash equivalents 6.50%
New Zealand fixed interest 29.00%
International fixed interest 7.50%
Australasian equities 27.00%
International equities 25.00%
Listed property 5.00%

Things to note

  • Manager: Forsyth Barr Investment Management Limited
  • Investment manager: Octagon Asset Management Limited
  • Date the fund started: 11 December 2020
  • Tax status: Portfolio Investment Fund (PIE)
  • Minimum suggested investment time frame: At least five years
  • Benchmark: None
  • Currency: New Zealand dollars

View the Product Disclosure Statement for detailed information about this Fund and Octagon Investment Funds Scheme.

Fees

  • Annual fund charges are currently 1.15% p.a. of the value of your investment. We pay management and administration charges along with the Supervisor fee out of this. All fees and charges are quoted exclusive of GST.

Forsyth Barr Investment Management Limited is the issuer and Octagon Asset Management Limited the investment manager of the Octagon Investment Funds. The comments on this webpage do not take your personal circumstances into account. Before acting on any information on this webpage, we recommend you seek financial advice. Forsyth Barr Investment Management Limited, Octagon Asset Management Limited and their affiliates do not make any representation or warranty (express or implied) that this webpage 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 webpage. This webpage is not intended to be distributed or made available to any person in any jurisdiction where doing so would constitute a breach of any applicable laws or regulations.

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