Quarter Two

Update 2018

 
Lunch with Zoltan Moricz

 

We are pleased to welcome you to a lunch with Zoltan Moricz, Senior Director of CBRE Research in New Zealand on Friday 31st August at 12pm.

 

Zoltan will be presenting an update on the New Zealand commercial property market.

Zoltan joined CBRE in 1994 and has led the New Zealand Research division since 1996. In addition to his leadership and management roles for the department, Zoltan prepares client presentations and market reports for both general distribution and subscription.  

 

He also undertakes consultancy briefs within the office, retail, industrial, land and residential property market sectors and has extensive experience with both public and private sector assignments having undertaken work for a wide range of local government agencies and most major companies involved in commercial real estate within New Zealand. 

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Trust Management News and Articles

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Hedging Currency Risk
Investing in international markets has benefits and costs. A key risk that needs to be carefully managed is the prospect of adverse exchange rate movements. This risk can be hedged using currency contracts.
Hedging currency risk is not an easy idea to grasp. This article takes a deeper look into the topic in order for clients to gain a better understanding.
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Profile: John Williams
Investment Manager
John Williams, Investment Manager of Trust Investment, finds satisfaction in assisting charities with attaining better quality results. He describes his role as one similar to a medical professional, but in relation to financial health.
 
With nearly 30 years and a range of experience in wholesale funds management, John has built a reputation as an experienced and trusted professional.

Fund News

105 Wiri Station Road Purchase

The Trust Investments Property Fund announced on  4th July 2018 that it has contracted to purchase a substantial industrial property in Wiri Station Road in South Auckland.
The property is undergoing major refurbishment in preparation for the infrastructure contractor, HEB Construction to take occupation and for a new 15 year net lease to commence. 
Lease of 439 East Tamaki Road Warehouse to O-I New Zealand
Trust Management is pleased to announce the leasing of 439 East Tamaki Road Warehouse to ACI Operations NZ Limited trading as O-I New Zealand. 
 
O-I Group is one of the world’s largest glass container manufacturers.  This is another quality tenant secured within the property portfolio.

 

 
 
 

Fund Returns

BALANCED FUND

The Balanced Fund invests in the other five sector funds and has a moderate risk profile with a well-diversified target asset allocation of 35% Fixed Interest, 35% Shares and 30% Property. The Fund has a strong focus on the distribution of income and its returns tend to be reasonably stable.

In contrast to the flat March quarter, the June quarter saw the Fund’s shares and property investments perform strongly despite escalating trade tensions between the US and China. Fixed interest returns were positive if modest. Markets were generally less volatile than in the previous quarter, although emerging markets lost significant ground.

The Fund’s return was 4.3% for the quarter, a blend of the 5%-10% for shares and property and the lower fixed interest returns. The return for the 12 months to June was 10.9%.

The changes to the Fund’s strategic asset allocation in late 2016 have continued to benefit investors, with the additional 10% allocated to NZ Bonds (25% up from 18%) and Australasian Shares (15% up from 12%) strongly outperforming International Bonds (10% allocation reduced from 20%).   

The investment backdrop remains supportive, at least in the short term. Economic growth rates are sound, the trend in company earnings is positive and monetary policies are still very accommodating. However this support is expected to lose strength in coming years, as higher interest rates take effect and the temporary boost from the US fiscal expansion peters out. The outlook for all asset classes is very dependent on the pace of US Federal Funds rate increases.  We expect the current bull market cycle to reach maturity over the next year or so and for conditions to become more challenging.

To 30 June 2018

Inception Date 01/06/2006

PROPERTY FUND

The Fund returned 5.1% for the June quarter and 9.7% for the 12 months to June, reflecting solid rental income and positive revaluations in the portfolio.

On the back of the purchase of the Countdown Supermarket in Christchurch for $21.5m in March, the Fund has unconditionally agreed to purchase 105 Wiri Station Road, an industrial property located in Wiri, Auckland for around $19.5m. This property has low risk attributes which improves the quality of the portfolio. The purchase will extend the Weighted Average Lease Term of the assets in the Fund to over 11 years.

The Fund will be close to fully invested when the Wiri purchase has settled, with the portfolio comprising 13 properties valued at over $150m.

The Fund has a strong emphasis on generating regular income for investors via its quarterly distributions. The performance of the Fund is shown alongside the returns of the NZX 90 Day Bank Bill Index + 2.5% as a comparison. Solid revaluation gains have underpinned the performance of the Fund in recent years.

To 30 June 2018

Inception Date 01/03/2001

SUSTAINABLE AUSTRALASIAN SHARE FUND

The Fund returned 9.0% in the June quarter, compared to the benchmark’s 7.7%. The 12 months to June showed a strong 25.9% gain, well ahead of the benchmark return of 17.7%.

Both the NZ and Australian share markets benefited in the quarter from investors switching out of emerging markets, with both markets seen as relatively safe havens for investment.

The NZ market saw double digit quarterly returns from large stocks Fletcher Building, Mainfreight, Ryman Healthcare and Fisher & Paykel Healthcare. In part, this reflected additional global demand following their higher representation in global equity indices. A2 milk’s price fell in the period, despite further growth in its shipment volumes and market share.

The Australian market had its best quarterly return for three years. Higher oil prices boosted energy stocks, but financials weakened as the Royal Commission inquiry into the financial services industry impacted sentiment. CBA, ANZ and NAB all announced changes in their wealth management divisions.

The Fund’s outperformance of its benchmark for the quarter was driven by overweight positions in Xero, Vista, CSL, APN Outdoor and Macquarie. Underweight positions in Fonterra, Comvita and Heartland also contributed. A2 Milk, Pacific Edge, Syrah Resources and Challenger were the main detractors.

The Sustainable Australasian Share Fund is managed versus the S&P/NZX 50 Portfolio Index. The Fund excludes companies whose major activities are alcohol, pornography, armaments, gambling, tobacco or the production and/or extraction of fossil fuels.

To 30 June 2018

Inception Date 01/12/2002

INTERNATIONAL SHARE FUND

The Fund returned 6.0% in the June quarter, matching the benchmark, and giving a 16.5% return for the June year (benchmark 16.2%). In local currency terms, the US market gained 2.9%, Japan was up 4.0% and the UK rose 8.2%. The 6% fall in the NZ Dollar versus the US Dollar over the three months boosted the return.

The strong return for the three months came despite escalating trade tensions between the US and China. While the larger developed markets performed well and markets were generally less volatile than in the previous quarter, emerging markets such as China, Brazil and Argentina lost considerable ground.

The overall investment backdrop continues to be positive, with easy monetary policies and healthy growth in company earnings. However a mild slowdown in global economic growth, further gradual tightening of monetary conditions and an uncertain political environment in many countries point to more modest capital gains over the next year or so.

The Fund invests in an indexed product that excludes companies involved in the manufacture of tobacco, controversial weapons or nuclear weapons. Relative to the MSCI World ex-Australia Index, the Fund also targets a 20% improvement in the ESG score as well as a 50% reduction in current and potential carbon emissions. The Fund’s foreign exchange exposures are 50% hedged to NZ dollars.

To 30 June 2018

Inception Date 01/12/2005

NZ BOND FUND

The Fund returned 1.1% in the June quarter (benchmark 1.1%) and 4.3% in the June year (4.2%).

Long-term yields in the New Zealand market were little changed over the three months, in line with the trend in Australia, and again ignoring a rising trend in the US market. The yield on the 10-year Government Stock maturity closed the quarter at 2.85%, the midpoint of the 2.70-3.00% range that has prevailed for most of the last 12 months.

Short-term rates were also stable in the period, with the Reserve Bank again leaving the Official Cash Rate unchanged at 1.75%. No change is expected until 2019.

Given the gradual trend towards higher inflation in the US and the zero margin between New Zealand and US yields, we remain cautious on the market. We expect long-term interest rates to rise in the coming year and offer better opportunities to lengthen the current maturity profile.

The Fund’s strategy continues to prioritise the level and stability of distributed income.

To 30 June 2018

Inception Date 01/09/2005

INTERNATIONAL BOND FUND

The Fund returned 0.3% for the June quarter (benchmark 0.2%), giving a June year return of 2.5% (2.7%).

Over the three months, long-term sovereign bond yields were mixed, with yields rising in the US but generally falling in Europe and the UK, with the exception of higher risk markets such as Italy. The yield on US 10-year Treasuries rose 0.12% to close at 2.86%, the equivalent German yield declined from 0.50% to 0.30%, but the Italian yield surged from 1.79% to 2.68%.

The US market is facing upward yield pressure from a trend of higher inflation and a mounting budget deficit that is prompting more issuance of government bonds. Based on the US Federal Reserve's preferred measure, US inflation of 2.3% is now above the 2.0% target. The European Union’s 2.0% inflation rate is at a five-year high, and Japan's rate, if only 0.7%, is gently trending higher.

While these inflation rates are modest, the current overall yield structure remains very low by any historical comparison and offers scant, if any, margin over them. We expect modest returns from the Fund until interest rates move rather higher.

The Fund invests in an index fund that invests only in sovereign securities. This product tracks the FTSE World Government Bond Index hedged to Australian dollars. A further hedge is applied to hedge the Fund’s Australian dollar exposure to NZ dollars. Returns tend to lag the benchmark slightly as the cost of hedging is excluded from the benchmark return calculation.

To 30 June 2018

Inception Date 01/09/2005

Under the Financial Markets Conduct Act this communication may be deemed to be an advertisement for an offer of units. Trust Investments Management Limited is the issuer of the units to be issued under the offer to which this advertisement relates. A product disclosure statement for the offer, which sets out the terms and conditions of the offer, is available, and can be obtained at www.trustmanagement.co.nz/investment-products.