Income Fund

(Formerly Forsyth Barr Income Fund)

Overview

The fund aims to pay distributions, while maintaining the fund’s capital value over the longterm 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 generally higher than term deposit rates of domestic major banks and are lower than those of the Growth Fund.

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Unit Price

Month End Unit Price

As at 30 Apr 2022

1.0049 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 Australian equities exposure was helpful to total returns but rising interest rates…

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 Australian equities exposure was helpful to total returns but rising interest rates still saw a negative return generated from the fixed interest portion of the fund. The higher interest rates do flow through to the potential future return for the fixed interest portion of the fund however.

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

Portfolio Performance

The Income Fund delivered a gross return of -0.82% for the month of April, outperforming the fund’s market index return of -1.81% by +0.98%.

For the 12 months to the end of April the Income Fund delivered a gross return of +3.34%, outperforming the fund’s market index return of -2.14% by +5.48%.

Positive relative performance from the underlying single sector funds we use in the Octagon Income Fund contributed to outperformance along with strong performance from directly held stocks in AGL Energy, Spark, APA Group, and Atlas Arteria.

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 wheat - 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, whilst no global economy (outside of Japan) is escaping the effects of rising inflation and the need for central banks to raise interest rates to counter it.  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.

April again saw markets move interest rates higher. Around nine months ago we felt most central banks and the markets themselves had underestimated the impact inflation would have on interest rates and fixed interest market returns. Now we think a much more realistic view of the future outlook has been priced into fixed interest markets and their valuations are more attractive. Equity markets have fallen in tandem with higher interest rates, as fixed interest assets are generally lower risk and now offer more attractive returns relative to equity markets than nine months ago.

We are comfortable with our level of foreign currency hedging currently, with the New Zealand dollar trading near our long run view of fair value against the United States dollar, but expensive against the Australian dollar. 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 Australian equities, and listed property. As at 30 April 2022, these exposures represented 22.42% of the value of the fund. After allowing for foreign currency hedges in place, approximately 13.78% 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
ANZ transactional bank account 7.94%
Vital Healthcare Property Trust 2.30%
Goodman Property Trust 2.06%
Kiwi Property Group Limited 1.85%
Infratil Limited 1.85%
Fletcher Building Limited 1.77%
Westpac Banking Corporation 1.74%
Precinct Properties New Zealand Limited 1.56%
Spark New Zealand Limited 1.44%
BHP Group Limited 1.41%
Major holdings as % of total portfolio 23.92%
Total portfolio holdings 1912

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 -0.78% 3 Months 0.95% 1 Year 2.64% *3 Years N/A *Since commenced operation 2.53%
Gross Fund Return 1 Month -0.82% 3 Months 1.01% 1 Year 3.34% *3 Years N/A *Since commenced operation 3.27%
Composite Index 1 Month -1.81% 3 Months -0.88% 1 Year -2.14% *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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Income Distributions

The Income Fund aims to make regular distributions on a quarterly basis in April, July, October and January.  You can elect to have distributions re-invested in the fund or paid into your bank account.

Date Cents per unit NZD
April 2021 0.00
July 2021 0.65
October 2021 0.65
January 2022 0.65
April 2022 0.75

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 Income Fund.

Fund update

As at 31 March 2022

This document tells you how the Income 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 Income 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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Lower risk
Higher risk

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 2 May 2022)

Cash and cash equivalents 5.00%
New Zealand fixed interest 20.00%
International fixed interest 20.00%
Australasian equities 40.00%
International equities 0.00%
Listed property 15.00%

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 0.75% 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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