ANZ Default KiwiSaver Scheme Conservative Fund

Performance is after the annual fund charge and before tax. Rates, fees and agreements.

• The fund has a significant weighting to bonds, which make up over half of its holdings. Global government bond markets were lower over the quarter, despite many central banks cutting interest rates; ordinarily, this would be positive for bond markets.
• US bonds underperformed most other regions. The US Federal Reserve (the Fed) lowered interest rates twice – by 25 basis points in November and December. However, following its most recent meeting, it said that slower progress on inflation, strong growth and relatively stable unemployment translated to a slower pace of rate cuts ahead.
• Bond markets elsewhere also fell in value, albeit less than in the US. UK bonds lost ground, as a pick-up in inflation prompted the Bank of England (BoE) to leave interest rates on hold in December. Australian bonds also declined, as the Reserve Bank of Australia (RBA) is yet to deliver rate cuts.
• New Zealand bonds finished the quarter modestly higher, one of the few regions that saw bond prices rise. The mild gains came after 100 basis points of cuts in the Official Cash Rate (OCR) by the Reserve Bank of New Zealand (RBNZ). The rate cuts came after a series of weak economic data, including a 1.0% slump in Q3 growth (GDP), ongoing weakness in retail sales and a jump in the unemployment rate to 4.8%.
• The fund also has a modest exposure to share markets, which were mostly higher over the quarter. US shares outperformed, helped by the re-election of Donald Trump, whose business-friendly policies are seen as positive for local companies. Meanwhile, the New Zealand share market also delivered solid gains, with the NZX 50 Index rising 5.5% over the quarter. The market was supported by the 100 basis points of easing in the OCR, and a reporting season where earnings held up reasonably well.
• Holding back relative returns was the poor performance of our government bond holdings, to which this fund has a significant weighting. Also detrimental was our international equity holdings – namely an underweight to several large-cap technology and consumer discretionary companies. Company selection within Australian shares also hurt. This was partly offset by better selection among our New Zealand shares and international listed property holdings.
• Heading into the New Year, share market valuations appear stretched even after factoring in robust earnings growth and a slight pull-back in markets towards the end of December. The risk for bond markets is that central banks slow down the pace/extent of future rate cuts, given ongoing economic resilience and the risk of a resurgence in inflation – particularly in the US. For this reason, we await further clarity, which should come with more detail on Trump’s policies.

The fund aims to achieve (after the fund charge and before tax) over the long term low relatively stable returns, allowing for small ups and downs in value.

The graph below shows the value of a $1,000 investment made at the time the fund launched.

Performance is after the annual fund charge and before tax. Rates, fees and agreements.

The fund invests mainly in income assets (cash and cash equivalents and fixed interest), with a smaller exposure to growth assets (equities, listed property and listed infrastructure). The fund may also invest in alternative assets.

This chart shows the mix of assets that the fund generally intends to invest in.