NZ FIXED INTEREST FUND JUNE 2018

Transcription

1 NZ FIXED INTEREST FUND JUNE 2018

2 Contents 1. Economic and market recap 3 2. Performance and attribution Attribution Strategy 26 Appendix 1. Portfolio composition 30

3 1. ECONOMIC AND MARKET RECAP

4 NZ ECONOMIC ACTIVITY JUNE GDP for Q1 was in line with expectations at 0.5% Q/Q (prev 0.6%) and 2.7% Y/Y (prev 2.9%). This was below RBNZ and treasury expectations of 0.7% Q/Q. Growth was subdued as construction becomes capacity constrained and business confidence is low but is expected to bounce back later in the year. Q1 Manufacturing volumes were up 1.4% Q/Q (prev 1.5% revised), with meat / dairy the biggest contributor gaining 2.2% Q/Q. Terms of Trade for Q1 was done 1.9% Q/Q (prev +0.8%) which was largely in line with expectations of -2.0%. Whilst this is off its record high in December it is still at very high levels. BusinessNZ Manufacturing PMI decreased in May to 54.5 (prev 59.1 revised) returning to its Jan to March average. The ANZ business confidence for June fell again to (prev -27.2), and the measure of their own activity also decreased to 9.4 (prev 13.6) but remained in positive territory. So overall confidence still remains low. ANZ consumer confidence for June fell 0.8% M/M to 120 (prev 121) which in line with the historical average. Source: AMP Capital 4

5 NZ ECONOMIC ACTIVITY JUNE Source: Bloonmberg 5

6 NZ MARKET ACTIVITY JUNE 90 day bank bills were but still keeping around the 2% mark. Government bond rates were lower for all maturities with greater moves in the belly of the curve. NZ government bond rates out performed global government bond rates. Swap rates were also lower with greater moves for mid term rates. Swap spreads marginally narrowed for all maturities. Breakeven inflation rates were lower which was against the moves in global breakevens. Source: AMP Capital 6

7 NZ KEY INTEREST RATE CHANGES JUNE RATES, % Source: AMP Capital, Bloomberg 7

8 NZ MARKET ACTIVITY LAST THREE MONTHS No change in the OCR as expected as the RBNZ continues with its on hold message. 90 day bank bill rates were up 4bp in the last three months. Government bond rates decreased for all maturities except Mar The government bond curve flattened. Swap rates were lower for all maturities. This was roughly in line with US markets and global markets. Swap spreads widened for all maturities. Breakeven inflation rates were higher by 11bps. This was in line with the moves in the US. Source: AMP Capital 8

9 NZ KEY INTEREST RATE CHANGES LAST THREE MONTHS RATES, % Source: AMP Capital, Bloomberg 9

10 2. PERFORMANCE AND ATTRIBUTION

11 FIXED (AIFF) PERFORMANCE JUNE Source: AMP Capital, Bloomberg 11

12 FIXED (AIFF) MONTHLY ACTIVE MANAGEMENT -13 BPS FOR JUNE 2018 Source: AMP Capital, Bloomberg 12

13 FIXED (AIFF) ROLLING 12M RETURNS ROLLING RETURNS, % Source: AMP Capital, Bloomberg 13

14 FIXED (AIFF) ATTRIBUTION FOR 1 MONTH CREDIT AND INFLATION ADDED VALUE, LOSSES FROM CURVE EXCESS RETURNS, BPS (DATA FOR MAY 2018) Source: AMP Capital, Bloomberg 14

15 FIXED (AIFF) ATTRIBUTION FOR 3 MONTHS CREDIT AND INFLATION ADDING VALUE, LOSSES FROM DURATION AND CURVE. EXCESS RETURNS, BPS (DATA FOR 3M ENDED MAY 2018) Source: AMP Capital, Bloomberg 15

16 FIXED (AIFF) ATTRIBUTION FOR 12 MONTHS CREDIT, DURATION AND INFLATION ADDING VALUE EXCESS RETURNS, BPS (DATA FOR 12M ENDED MAY 2018) Source: AMP Capital, Bloomberg 16

17 3. ATTRIBUTION

18 FIXED INCOME (AIFF) SECTOR ASSET COMPOSITION MARKET VALUE SHARE BY ASSET SECTOR, % Source: AMP Capital 18

19 FIXED INCOME (AIFF) DURATION POSITION WE REMAIN SHORT DURATION ACTIVE DURATION (LHS), YEARS; YIELD (RHS), % Source: AMP Capital 19

20 FIXED INCOME (AIFF) DURATION CONTRIBUTION HAVE MAINTAINED SHORT DURATION POSITION DURATION CONTRIBUTION BY SECTOR AND BENCHMARK DURATION, YEARS Source: AMP Capital 20

21 FIXED INCOME (AIFF) CREDIT RATING BAND COMPOSITION MARKET VALUE SHARE BY CREDIT RATING BAND, % Source: AMP Capital 21

22 FIXED INCOME (AIFF) CREDIT SPREAD DURATION HAVE BEEN MAINTAINING CREDIT SPREAD DURATION CREDIT SPREAD DURATION CONTRIBUTION, YEARS; CREDIT SPREAD (RHS), % Source: AMP Capital 22

23 FIXED INCOME (AIFF) SWAP SPREAD DURATION WE INCREASED SWAP SPREAD EXPOSURE SWAP SPREAD DURATION, YEARS; SWAP SPREAD (RHS), % Source: AMP Capital 23

24 FIXED INCOME (AIFF) CURVE EXPOSURE ACTIVE DURATION CONTRIBUTION BY MATURITY BUCKET, YEARS Source: AMP Capital 24

25 FIXED INCOME (AIFF) CURVE EXPOSURE DETAIL ACTIVE DURATION CONTRIBUTION BY SECTOR MATURITY BUCKET, YEARS Source: AMP Capital 25

26 FIXED INCOME (AIFF) FUND AND BENCHMARK YIELD YIELDS STABILISE, ACTIVE YIELD AROUND 47BPS YIELD, % Source: AMP Capital 26

27 4. STRATEGY

28 GLOBAL OUTLOOK > Global activity data has been generally soft over the first quarter of 2018 though our forecast growth of 3.8% for this year remains slightly higher than the 3.7% achieved in > Softer growth in the Eurozone, Japan and the UK was partly bad weather related though economic conditions in the UK remain challenged by political and Brexit uncertainty. Though growth may slow somewhat in Japan and the Eurozone this year, we expect it to remain above trend. > Easier fiscal policy boosts US GDP growth and India strengthens following disruptions in These positives will be offset to some extent by renewed slowdown in China as reform efforts step up. > Core inflation and wage increases remain subdued across the developed economies. However continued above trend growth and absorption of spare capacity will see central banks continue the gradual withdrawal of monetary stimulus. > The US Federal Reserve, The Bank of Canada and the Bank of England will continue to raise interest rates and the European Central Bank will likely end its asset purchase program by the end of this year. The Bank of Japan appears likely to maintain its current easing stance. > On the political front trade tensions remain high as US trade policy remains chaotic, the planned US-North Korea summit has been on and off, and Italy and Spain have new Governments. 28

29 NEW ZEALAND OUTLOOK > The outlook for the New Zealand economy remains solid. Slowing net migration and a residential construction sector working close to capacity will be offset by continued growth in labour income, stronger business investment and fiscal stimulus. > Annual average growth came in at 2.9% in calendar We see the following two years averaging 3.0% (2.8% in 2018 and 3.2% in 2019) with a move lower to around 2.5% in > Retail spending growth slowed in the first few months of the year as the housing market slowed and migration inflows moderated. We expect spending will recover as the Government s Families Package kicks in on July 1 st. > Headline inflation has moved lower again as a large increase in the March 2017 quarter dropped out of the annual calculation. This fall will reverse next quarter though still leave annual inflation below the mid-point of the target band. > The labour market continues to tighten with the unemployment rate now at a nine year low. We expect further gradual declines which will put upward pressure on wage growth and inflation in time. > The New Zealand dollar has fallen recently though remains above our fair value estimate of US 68 cents. This is in part due to renewed strength in the USD though is also supported by interest rate differentials. As the US Federal Reserve continues to raise interest rates and the RBNZ remains on hold the NZD is expected to continue to move lower. However the record high level of the terms of trade will prevent a significant decline the currency. 29

30 FIXED INCOME (AIF F) STRATEGY JUNE 2018 Risk factor Current position Strategy Description and rationale Duration Short (-0.6Y) Maintain for the moment but look to reduce on a bounce in yields or if yields continue to rally in long maturities Global data remains robust. However, interest rates have rallied recently on global trade concerns, some weakness in equity markets, and a selloff in emerging markets. NZ rates have also rallied, on these global moves, and following a more dovish interpretation of RBNZ and a series of weaker data prints. We will go back to neutral should these global and domestic pressures continue Yield Curve Small steepener 2-10Y Reduce The NZ yield curve has flattened recently. We are more cautious on increasing steepeners given concerns outlined above. We could move to flattening position should global conditions continue to deteriorate Swap Spread Overweight (1.74Y duration contribution) Reduce on any narrowing Add on widening We increased swap spread risk as swap spreads on longer maturities widened. We will look to educe position as swap spreads in NZ continue to range trade Credit Overweight Maintain to increase Funding pressures in money markets and volatility in markets have seen a move wider global credit spreads. This has flowed through to domestic bank issues as domestic issuance has increased. Some of the extra return from credit is being offset by wider spreads. We continue to invest cautiously in new issues at wider spreads to preserve yield, however the tailwinds for credit are now past. Inflation Overweight (0.60Y duration contribution) Maintain to small increase As excess capacity gets eroded globally and in New Zealand, along with rises in commodity prices such as oil, we expect inflation pressures to emerge supporting break even widening. Bias to add small risk as headline inflation pressures increase Source: AMP Capital 30

31 A1. COMPOSITION

32 FIXED INCOME (AIFF) ASSET COMPOSITION DETAIL AS AT END OF JUNE 2018 MARKET VALUE SHARE IN EACH ASSET CLASS, % Source: AMP Capital 32

33 FIXED INCOME (AIFF) RATING COMPOSITION DETAIL AS AT END OF JUNE 2018 MARKET VALUE SHARE IN EACH RATING BUCKET, % Source: AMP Capital 33

34 FIXED INCOME (AIFF) DURATION OF FUND AND BENCHMARK AS AT END OF JUNE 2018 DURATION BY MATURITY BUCKET, YEARS Source: AMP Capital 34

35 FIXED INCOME (AIFF) PORTFOLIO STATISTICS AS AT END OF JUNE 2018 Metric Fund Benchmark Running Yield 2.70% 2.23% Duration Source: AMP Capital 35

36 IMPORTANT NOTE Neither AMP Capital Investors (New Zealand) Limited, nor any other company in the AMP Group guarantees the repayment of capital or the performance of any product or any particular rate of return referred to in this presentation. Past performance is not a reliable indicator of future performance. While every care has been taken in the preparation of this document, AMP Capital Investors makes no representation or warranty as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. This document has been prepared for the purpose of providing general information, without taking account of any particular investor s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided. 36