Quarter Three

Update 2018

Ministry Accounting Roadshows

We would like to invite you to our  Ministry Accounting Roadshows where we will cover the following topics:

  • The Budgeting process; how we can assist and evaluate your budget

  • The 2018 Annual Financial Statements process and time frames

  • Monthly Reporting; a flexible approach

  • GST on events organised by ministry units

  • Payments taxed at source

We will be visiting the following locations:

Christ Church, Whangarei; 
Friday 23rd November 12.30 - 2pm

St Peter’s Takapuna; 
Tuesday 27th November 12.30 - 2pm

Massey Anglican Church; 
Wednesday 28th November 12.30 - 2pm

Anglican Parish of Thames; 
Friday 30th November 12.30 - 2pm

St Mark’s Remuera; 
Wednesday 5th December 12.30 - 2pm 

All Saints, Howick;
Thursday 6th December 12.30 - 2pm 

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Trust Management News and Articles

Christmas Office Closure
It has been a busy year, both for our staff and our clients, but a very rewarding and enriching year at the same time.
Our office will be closing on Friday, 21 December 2018 and reopening on Monday, 7 January 2019.
From 7 January 2019 to 11 January 2019 our office will be open but operating with reduced staffing levels, as we encourage our staff to have a well earned break with family and friends.
We look forward to meeting up with our clients and investors again in the New Year, and we wish you all the best for the festive season.


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Profile: Patrick O'Reilly General Manager Property 

Trust Management General Manager Patrick O'Reilly lives and breathes property. Boasting more than 20 years of senior leadership experience in the property industry for both renowned and growing clients, Patrick is a respected commercial manager known for delivering outstanding results.


Fund News

Update on Harbourside Centre,
16-18 Parumoana Street, Porirua
This property consists of two retail buildings with common car parking and tenancies ranging from 140 –750 m².  The retail environment of Porirua has traditionally been split between the major shopping Centre, North City to the south, and the Mega Centre to the North.
Harbourside sits between the two retail hubs on the edge of the Porirua Estuary and adjacent to a large Supermarket and opposite the community Library. 
Over the last twelve months Trust Management has undertaken work to reposition the units to provide better quality retail space, which resulted in new leases to Caci Clinic and NZ Uniforms. 
Together with creating better retail spaces, Trust Management have completed a subdivision creating 9 Unit Titles.

Fund Returns



The Balanced Fund invests in the other five sector funds. It 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.

The Fund’s return was 2.6% for the quarter, buoyed by further strong returns from International Shares and Australasian Shares. The return for the 12 months to September was 10.5%.

Positive company earnings trends and a strong US economy drove share markets higher over the quarter, outweighing concerns about rising interest rates and trade tensions between the US and China.

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

The investment backdrop remains supportive for now with solid rates of economic growth and corporate profits growth, boosted by expansionary fiscal policy in the US. Monetary policies also continue to be accommodating. However these trends will be difficult to sustain with higher inflation and a large US budget deficit on the horizon. Long term interest rates are likely to increase as a result at the same time that monetary policies are anticipated to tighten. We expect the current bull market cycle to reach maturity over the next year or so with investing conditions becoming more challenging.

To 30 September 2018

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Inception Date 01/06/2006

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The Fund returned 1.5% for the September quarter and 10.0% for the 12 months to September, reflecting solid rental income and capital growth in the portfolio.

The Fund is preparing for settling the purchase of 105 Wiri Station Road in mid November. This is a quality, extensively refurbished industrial property, with a new 15 year lease to an established infrastructure contractor. The purchase price will be circa $19.5m.

During the quarter O-I New Zealand took occupation of the warehouse at 439 East Tamaki Road. This was a seamless transition, with the new tenant commencing the day following the previous tenant’s departure.

The Fund currently has an occupancy of 98.2% by area, with all leases that were due for expiry in 2018 having been backfilled or extended.

Following the Wiri purchase, the portfolio comprises 14 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 compared against the returns of the NZX 90 Day Bank Bill Index + 2.5%. Solid revaluation gains have underpinned the performance in recent years.

To 30 September 2018

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Inception Date 01/03/2001

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The Fund returned 3.4% in the September quarter, underperforming the benchmark return of 4.8%. The 12 months to September showed a strong 20.3% gain, ahead of the benchmark’s 17.9%.

The New Zealand market was quite volatile in the quarter but closed with a year to date return of 11.3%, topping the table for developed market returns for that period. The strong performance was in the context of healthy global economic growth and positive earnings trends, outweighing concerns about trade tensions and higher interest rates. The Australian equity market returned 1.5% in Australian Dollars for the quarter (1.4% in NZ Dollars).

In New Zealand the company reporting season in August resulted in some mild downgrades to forecast revenues and earnings. Companies that were downrated included Sky TV, Z Energy, Tourism Holdings, Fonterra and Fletcher Building. On the positive side, EBOS (+24%) topped performers for the quarter despite registering a small downgrade in earnings. Ryman Healthcare (+14%) and Kathmandu (+11%) also delivered strong results. Among the larger stocks the results of Auckland Airport, Spark, and Meridian were solid and their share prices responded. In contrast Fisher & Paykel Healthcare provided a small earnings downgrade and its share price weakened.

A2 Milk continues to polarise the investment community, with a mildly positive earnings result contrasting with a review of Chinese laws relating to e-commerce channels and news that the new CEO had recently sold her shareholding. The stock traded in a wide range during the quarter between $10 and almost $13.  At quarter end A2 was the largest single exposure in the portfolio.

The Australian equity market remained volatile in the backdrop of a new Prime Minister, the ongoing Royal Commission inquiry into misconduct in the financial services industry, and uncertainty in the electricity utilities and aged care sectors. The technology sector performed strongly, but the utilities and banking sectors saw price weakness.

During the quarter the portfolio benefited from its underweighting of Z Energy, Fisher & Paykel, Sky TV, Tourism Holdings and Fletcher Building, but lost ground by underweighting Trademe, EBOS, and Ryman. Mainfreight and Kathmandu continued to provide solid returns, but the Australian stocks in the portfolio generally dragged on performance.

Key changes to the portfolio over the quarter included reducing investments in Fisher & Paykel and Xero and introducing new stocks Steel and Tube and Lend Lease. Holdings were increased in Mainfreight, Summerset and A2 Milk but reduced in Contact Energy and Janus Henderson.

To 30 September 2018

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Inception Date 01/12/2002


The Fund had another strong quarter, returning 6.8%, in line with the benchmark, to give a 17.7% return for the September year (benchmark also 17.7%). In local currency terms, the US and Japanese markets rose 7-8%, but the returns of most other markets were more modest. The 2% fall in the NZ Dollar versus the US Dollar over the three months slightly enhanced the Fund’s return.

Positive trends in company earnings and a strong US economy outweighed concerns about rising interest rates and trade tensions between the US and China. The quarter was quite volatile with a wide dispersion of returns between markets and sectors.

Strong company revenues, a lower US corporate tax rate of 21% (down from 35%) and consumer confidence at an 18-year high continue to drive US company profits, with 2019 profits set to increase by at least 10% on 2018 earnings. Profits are also growing in Europe and Japan, if to a lesser extent.

The bull market of the last 10 years has been largely driven by growth in company earnings, although lower interest rates have also played their part. Current valuations are not unreasonable, although we note that the US 10-year Treasury yield is now at its highest margin above the US share market dividend yield since 2011. 

Share markets continue to be supported by easy monetary policies and solid earnings growth. These factors are set to weaken over the next year or two. We expect more modest returns in coming years, cognisant that the current bull market is very mature.

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 September 2018

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Inception Date 01/12/2005


The Fund returned 1.4% in the September quarter (benchmark 1.6%) to give 4.2% for the September year (benchmark 3.9%).

Long-term yields in the New Zealand market declined about 0.25% over the three months, generating some capital gain. The fall in yields bucked the trend offshore, with comparable yields in the US, for example, rising about 0.20%. The yield on the 10-year Government Stock maturity closed the quarter at 2.61%, below the 2.70-3.00% range that has prevailed for most of the last 12-18 months.

Short-term rates remained stable in the quarter, the Reserve Bank again leaving the Official Cash Rate unchanged at 1.75%, while noting that they expect to make no change before 2020.

The economy is facing some headwinds of low business confidence, a declining trend in dairy prices and a housing market that has lost momentum. At the same time there are some inflation pressures from inflation from higher energy prices, wage increases and the lower NZ dollar.

We continue to view current yields as unattractive and are conscious of the large negative yield premium versus the US market. We are maintaining a cautious stance, expecting long-term interest rates to rise in the coming year and offer better opportunities to lengthen the Fund’s maturity profile.

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

To 30 September 2018

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Inception Date 01/09/2005


The Fund returned -0.7% for the September quarter (benchmark -0.6%), giving a September year return of 1.1% (1.3%).

Most long-term sovereign bond yields rose over the quarter, resulting in some loss in capital value. For example, 10-year yields rose by 0.20% in the US, 0.17% in Germany and 0.29% in the UK.  

As widely expected, the US Federal Reserve lifted the Fed Funds rate by 0.25% to 2.00-2.25%, with the accompanying forward guidance pointing to a fourth rate hike later this year, likely in December, with three further increases projected for 2019.

The US bond market faces upward yield pressure from gradual increases in inflation and the need to fund a ballooning budget deficit that is fast approaching US$1 trillion. Less accommodating monetary conditions will also dampen the demand for long-term bonds.   

Even after their recent rises, long-term sovereign yields remain low by any historical comparison. We expect modest returns from the Fund until interest rates move 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 September 2018

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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.