OneAnswer KiwiSaver Scheme New Zealand Fixed Interest Fund

• It was a good quarter for domestic bondholders, helped in part by the 25-basis-point cut in the Official Cash Rate (OCR) by the Reserve Bank of New Zealand (RBNZ). The move came just a few months after the central bank delivered a surprising hawkish statement, lifting the probability of an interest rate hike. 
• In early October, the RBNZ followed its August rate cut, with a 50-basis-point cut, taking the OCR to 4.75%. In its press release, the central bank said it was more confident that inflation was back within its target band of 1% to 3%. 
• The about-turn came as economic data continued to worsen, highlighting challenges the domestic economy is facing. Among the concerns were a 1.2% decline in Q2 retail sales (the ninth quarterly decline over the past 10 quarters) and unemployment rising to 4.6% (the highest level in more than three years). 
• Meanwhile, the economy contracted by 0.2% in the three months to June 2024, raising the probability that the economy is in a recession. Bonds found further support after news that annual inflation fell to 3.3% during the second quarter, the slowest pace in three years.
• Over the quarter, the yield on the New Zealand 10-year government bond fell 43 basis points, closing at 4.2%.
• Duration strategy remained mostly neutral over the quarter. However, there were periods of volatility where we were able to capitalise on moves that we perceived to be out of line with market expectations. 
• Overall, our view is that the RBNZ will continue its interest rate cutting cycle into next year as the economy struggles to climb out of a tough period. 
• Meanwhile, we continued to favour high-quality corporate bonds, which offer higher levels of income compared to government bonds but do not compromise the fund’s focus on quality. This was particularly beneficial given their outperformance over the quarter.

The fund invests mainly in New Zealand fixed interest assets. Investments may include:

• Fixed interest assets in New Zealand dollars, or issued by New Zealand located or incorporated entities and hedged back to New Zealand dollars
• Cash and cash equivalents.

This chart show the mix of assets that the fund generally intends to invest in – 100% fixed interest.

See the fund's actual investment mix on page 3 of the fund update.