3/8/2021 11:00:00 PM

Fund Reviews: Diversified


Read the latest on our Conservative Fund.

Written by Mike Taylor,  Founder & CEO


There’s no beating around the bush, February was a very tough month for conservative funds in NZ driven by a violent back-up in long-dated bond yields across the globe.

The Conservative Fund was down 0.9% for the month, and has returned 5% for the 12 months to date.

With global growth looking more positive and additional stimulus likely in the bag, investors are concerned that those deflation fears will turn to inflation fears. So what happened? The 10-year interest rate for government bonds in NZ moved from around 1%, to a peak of around 2% at the end of February. This had the twin effect of causing a sell-off in stocks and corporate bonds. This is unusual as the two markets are not usually correlated, but from time to time it can happen.

In order to provide further diversification against such moves, the fund will continue to reduce its duration risk (exposure to long-dated bonds) by holding fixed interest of shorter maturity. In addition, the equity portion of the fund is tilting towards more recovery names. I’ve already talked about our exposure to energy and gold but I’ve also added Mitsubishi UFJ, Uber and Whitbread (UK pubs and hotels) this month, while exiting Netflix and Salesforce which are high valuation names. Netflix will likely struggle with growth once the world reopens.

Occasionally there will be months like February, but in general it is more uncommon than common to have negative monthly returns driven by a sell off in bonds AND equities at the same time.

Information is current as at 28 February 2021. Pie Funds Management Limited is the manager of the funds in the Pie Funds Management Scheme. Any advice is given by Pie Funds Management Limited and is general only. Our advice relates only to the specific financial products mentioned and does not account for personal circumstances or financial goals. Please see a financial adviser for tailored advice. You may have to pay product or other fees, like brokerage, if you act on any advice. As manager of the Pie Funds Management Scheme investment funds, we receive fees determined by your balance and we benefit financially if you invest in our products. We manage this conflict of interest via an internal compliance framework designed to help us meet our duties to you. For information about how we can help you, our duties and complaint process and how disputes can be resolved, or to see our product disclosure statement, please visit www.piefunds.co.nz. Please let us know if you would like a hard copy of this disclosure information. Past performance is not a guarantee of future returns. Returns can be negative as well as positive and returns over different periods may vary.