FUND PERFORMANCE

MARCH 2022

The commentary below provides further detail and insight into the Fund returns.

The Fund returns below show the returns compared to benchmark for the composite of the Trust Investments Group Investment Funds to 31 March 2020 and the Trust Management PIE Funds from 1 April 2020.

For more information on the Funds, please view the PDS and Quarterly Fund Updates

TRUST MANAGEMENT
ESG
BALANCED FUND

The Balanced Fund invests in the other five sector funds.  It maintains a moderate risk profile with a well-diversified target asset allocation of 30% Fixed Interest, 38% Shares and 32% Property.  The Fund has a strong focus on the distribution of income with moderate levels of investment risk. 

The Balanced Fund returned -3.5% for the three months to March 2022, and +3.8% for the 12 month period.  On a rolling five year basis, the Fund has delivered an annualised return of +8.7% per annum. 

Difficult market conditions in the first quarter of 2022 saw a negative return for the Fund.  While longer term performance remains strong, short term variations of the magnitude experienced this year are to be expected for a diversified portfolio which includes allocations to bonds, equities and commercial property.  For investors, focusing on long term outcomes remains important during unsettled periods.

Most asset classes delivered negative returns for the March quarterly period. Global shares (in local currency terms) fell 4.5%, with the New Zealand share market also weaker, falling 5.7% and taking its annual performance to -1.4%.  Bonds also posted material declines for the quarterly period, negatively impacted by rising inflationary pressures as markets factored in higher interest rates in the future.  Global bonds fell 4.8% with New Zealand bonds outperforming slightly, down 3.6%.  The property component of the Fund performed well with quality commercial property assets continuing to see solid valuation support, particularly within the industrial sector. 

From an outlook perspective, the uncertainty caused by the rapid increase in interest rates (and its potential impact on inflation and growth); alongside the devastating Ukraine crisis, means that we expect volatility to remain a feature of markets for some time to come.  We continue to recommend a well-balanced, high-quality portfolio, with a focus on sustainable income.

For the purposes of this report, the performance of the Balanced Fund is compared against the benchmark returns of the underlying funds, and in the case of the Property Fund against the NZX 90 Day Bank Bill Index + 2.5%. The Fund is managed by the internal team at Trust Management.

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TRUST MANAGEMENT
PROPERTY FUND

The Property Fund posted a solid gain of 2.6% for the three months to 31 March 2022, to give a return of 12.3% for the twelve month period.

The quarter saw a significant increase in the level of volatility in the listed markets across the world.  As an unlisted property fund with unit pricing linked to the underlying asset backing, the Property Fund has continued to perform well for investors.  For example, the S&P/ NZX All Real Estate Index, a broad measure of the performance of the New Zealand listed property sector, provided a return of -6.2% for the quarterly period and 0.8% for the twelve months to 31 March. 

 

All buildings in the Fund are revalued for the end of year financial accounting purposes.  A feature of FY22 was the acquisition of properties in off-market transactions. An example is the industrial property at 168 Roscommon Road purchased by the Fund for $25.5m in April 2021. The property was revalued to $28.2m as at 31 March 2022, an increase of 11%.  The investment property has many attractive features including fixed annual rental increases that has supported the value appreciation over the period.

 

The Fund continues to be well positioned, with its focus on well-located modern buildings with strong tenant covenants and long term leases.  In addition, the Fund is heavily weighted to the industrial sector which has been the best performing property sector.  The outlook for warehousing continues to be strong as internet sales increase the demand for warehouse storage.

 

For the purposes of this analysis, the performance of the Fund is compared against the returns of the NZX 90 Day Bank Bill Index +2.5%. The Fund is actively managed by the internal team at Trust Management.

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TRUST MANAGEMENT
ESG
NEW ZEALAND BOND FUND

The Fund posted a return of -3.8% for the three months to March 2022, to give a return of -6.9% for the twelve month period. 

New Zealand bonds delivered negative returns as bond yields continued to adjust upwards in line with the prospect of higher interest rates in the future.  Driving domestic yields higher was stronger-than-expected domestic and global inflation data, and significant movements in US long dated bond yields.  Government bonds have tended to underperform corporate bonds given their longer durations and lower yields. 

Strong domestic data for the December quarter included the unemployment rate falling to a record low 3.2%, a post lock down rebound in Gross Domestic Product (GDP) of 3.0% for the fourth quarter.  Inflation data continued to print at record levels for the past several decades, with annual inflation coming in at 5.9% year-on-year in December.  

 

The Reserve Bank of New Zealand (RBNZ) raised the Official Cash Rate (OCR) by 0.25% at its one meeting of the quarter, taking it from 0.75% to 1.00%, as anticipated by the market.  As at early April, financial markets were pricing in at least nine further hikes in the OCR this year, taking it to 3.25%.

 

With the RBNZ’s own forecasts for the OCR sitting at 2.2% by year end (according to their February Monetary Policy Statement), the underlying manager, Nikko, believes financial markets are over estimating the extent to which the RBNZ will need to tighten rates in the near term.  The manager has also increased the Fund’s exposure to inflation-linked bond securities issued by the NZ Government.  These are bonds where the interest (coupon) payments increase and decrease with changes in official inflation rates.

 

The Fund is currently actively managed by Nikko Asset Management.  The Fund’s benchmark index is the Bloomberg NZBond Composite 0+ Index

NZ Bond Fund - Mar 22.png

TRUST MANAGEMENT
ESG
INTERNATIONAL BOND FUND

The Fund posted a negative return of -4.7% for the three months to March 2022, and -3.7% for the twelve month period.

 

Inflation pressures continued to be the dominant theme, as global inflation data releases provided further upward surprises relative to expectations.  In particular, US inflation surged 7.9% year-on-year, while UK inflation rose to 6.2% year-on-year.  Central Banks globally signalled that further interest rate hikes than previously thought may be required in order to curb the more persistent and broadening inflationary pressures.  Long dated bond yields adjusted higher on this news which contributed to the bond market sell-off.

 

Russia’s invasion of Ukraine in late February fuelled uncertainty and added to already elevated inflationary pressures.  Prices for key commodities including oil and gas, wheat and corn rose amidst fears sanctions on Russia could disrupt supplies.

 

In data releases, consumer confidence and manufacturing data in Europe and the US came in a little weaker than expected towards the end of the quarter.  This was likely driven by increased uncertainty given the war in Ukraine as well as surging inflation.

 

The Fund currently invests in the BlackRock iShares ESG Global Bond Index Fund, an Australian domiciled unit trust managed by BlackRock Investment Management (Australia) Limited,  The Fund’s benchmark index is the Bloomberg Barclays Global Aggregate Index (NZD Hedged).   The Fund follows an index investment style. 

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TRUST MANAGEMENT
ESG
AUSTRALASIAN SHARE FUND

The Fund posted a negative return of -9.6% for the three months to March 2022, to give a slightly positive annual return of 1.3% for the year.  A sharp lift in long term interest rates and oscillating geopolitical tensions contributed to negative performance from the asset class over the quarter.

Locally, Westpac (+15%), Sky TV (+7%) and Meridian Energy (+4%) performed well for the quarter.  Smaller capitalisation companies Serko (-33%), Pacific Edge (-28%) and Vista Group (-22%) were among the weakest performers.  In Australia, the commodity sensitive sectors of energy and materials performed well, while the technology and healthcare sectors lagged.

While longer term absolute and benchmark relative performance remains strong, the Fund underperformed its benchmark for the latest quarterly period.  Investments in technology stocks were hit hard by the sharp increase in interest rates over the period, with negative returns from Pacific Edge, Block, Serko and Xero detracting from returns.  Mainfreight fell as investors took the view that supply chains were normalising reducing super-profits being earned.  Underweighting the poor performing Fisher & Paykel Healthcare, Ryman, and Goodman Property assisted returns relative to the market.

The Fund is currently actively managed by Harbour Asset Management. The Fund’s benchmark is the S&P/NZX 50 Portfolio Index.

Aus Share Fund - Mar 22.png

TRUST MANAGEMENT
ESG
INTERNATIONAL SHARE FUND

The Fund returned -6.4% for the three months to March 2022, and a strong 10.7% for the twelve month period. 

Following a strong 2021, global share markets, as measured by the MSCI World Index (in local currencies), fell 4.6% over the first quarter of 2022. Share markets were pushed around over the quarter by a combination of rising bond yields, economic disruption caused by the rapid spread of Omicron, and Russia’s invasion of Ukraine which caused commodity prices to spike and reignited geopolitical concerns.

Regionally, several South American commodity sensitive share markets were amongst the strongest performers, with Brazil rising 14.5%.  Meanwhile, European share markets underperformed, with the Euro Stoxx 50 Index falling 9.2% for the quarter.  From a sector perspective, commodity price sensitive sectors of energy and materials outperformed, while growth sectors of consumer discretionary and technology underperformed as uncertainties about future growth weighed on their performance.

The US company earnings reporting season provided solid results once again, helping to support market sentiment.  Corporations have largely been able to pass on price increases to consumers.

The Fund currently invests in the State Street Climate ESG International Equity Fund, an Australian domiciled unit trust managed by State Street Global Advisors.  The Fund’s benchmark index is the MSCI World ex Australia (50% hedged to NZD).  The Fund follows an index investment style. 

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Returns are gross of management fees and expenses, and are annualised for periods of longer than one year. Past performance is not indicative of future performance and is not guaranteed by Trust Investments Management Limited, the Supervisor, or the underlying Investment Managers. For further information please refer to the Product Disclosure Statement and Quarterly Fund Updates at www.trustmanagement.co.nz, further information can also be found at disclose-register.companiesoffice.govt.nz, under offer number OFR12861. Performance calculations for the Funds comprise the returns of the Trust Investments Group Investment Funds up to and including 31 March 2020 and for the Trust Management PIE Funds from 1 April 2020.

NOTICE

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 here.