Your Quarterly E-Zine
Edition 11 • December 2019

This website contains the latest edition of Forsyth Barr Focus, a quarterly on-line magazine written by senior members of Forsyth Barr's investment team.

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In our previous article on asset allocation, how we consider the construction of multi-asset portfolios, some of our readers may have noted the inclusion of international fixed interest in our target asset allocation for the Summer KiwiSaver scheme’s Summer Balanced Selection fund1.

Notwithstanding that our three Summer multi-asset class funds, Summer Conservative Selection, Summer Balanced Selection and Summer Growth Selection, are permitted to invest in international fixed interest, it is only recently that we made the decision to do so.

Indeed, you could argue that we’ve been late-to-the-party, as Morningstar’s KiwiSaver Survey, March Quarter 20192, estimates international bonds to be the third most preferred asset class.

We would counter that others have arrived at the party too early.

Figure 2 displays the returns of the S&P / NZX Investment Grade Corporate Bond Index, which is a good proxy for a New Zealand fixed interest portfolio, and the Bloomberg Barclays Global Aggregate Total Return Index, New Zealand dollar hedged, which is a widely recognised proxy for a diverse and conventionally managed portfolio of international fixed interest securities.

While we have been rewarded over the shorter-term, generally speaking, by favouring a greater exposure to domestic bonds than global bonds, we do need to appreciate over the longer-term that the returns between New Zealand and international fixed interest can converge.

While it’s always difficult (or impossible!) to perfect timing when executing investment decisions, we made the call earlier this month to invest some of Summer Conservative Selection’s, Summer Balanced Selection’s and Summer Growth Selection’s money into international fixed interest.

As at the end of last month (April) the S&P/NZX Investment Grade Corporate Bond Index had a yield-to-maturity of 2.36%3, while the equivalent metric for the Bloomberg Barclays Global Aggregate Total Return Index, New Zealand dollar hedged, was closer to 2.00%3 - neither look compelling under simple optics.

However, what prompted action was our perception of the international fixed interest opportunity set – it’s simply huge.

Did you know, as at 30 April 2019 there were 23,581 individual securities in the Bloomberg Barclays Global Aggregate Total Return Index3, worth an incredible NZ$78.4 trillion?

That’s a massive potential investment universe – dwarfing our domestic bond market - and is not one we can effectively tap by ourselves. So for our advised custodial clients we’ve established a relationship with PIMCO4, by facilitating investment in their Global Investor Series Funds, Global Bond Fund, New Zealand dollar hedged.

As we regard PIMCO as one of the world’s best fixed interest managers, it’s not surprising that we already use them as the global bond investment manager of our Summer KiwiSaver scheme.

We also like the diversification benefits of international bonds; think of your current fixed interest investments and your domestic equity exposures – we’re guessing there is a fair amount of doubling-up? In other words, we’re betting that in too many cases you own the debt and equity of the same New Zealand entity: concentration and not diversification!

It also makes investment sense when running-the-ruler over international fixed interest within a multi-asset portfolio; we do this by calculating our estimated forward-looking risk adjusted returns. Our research supports including international fixed interest when used in partnership with New Zealand fixed interest and cash.

Craig Alexander
Head of Funds Management

This is not a recommendation to buy or sell any financial product and does not take your personal circumstances into account. All opinions reflect our judgement on the date of communication and may change without notice. Past performance is not a reliable guide to future performance. We recommend you take financial advice before making investment decisions. We have prepared this information in good faith based on information obtained from other sources, but we do not guarantee the accuracy of that information. We do not make any representation or warranty (express or implied) that this information is accurate, complete, or current and to the maximum extent permitted by law disclaim any liability for loss which may be incurred by any person relying on this information.

The Summer KiwiSaver scheme is managed by Forsyth Barr Investment Management Ltd. You can obtain the Scheme’s product disclosure statement and further information about the Scheme at, from one of our offices, or by calling 0800 11 55 66. Forsyth Barr Investment Management Ltd is a licenced manager of registered schemes and part of the Forsyth Barr group of companies. Disclosure statements are available from Martin Hawes or a Forsyth Barr Authorised Financial Adviser on request and free of charge.

1 The Summer Investment Selection was renamed the Summer Balanced Selection on 8 April 2019
2 See the full report here
© 2019 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. Any general advice or ‘class service’ have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892) and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Refer to our Financial Services Guide (FSG) for more information at You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser.
3 S&P Dow Jones Indices and Bloomberg as at close of business 30 April 2019
The investment manager is Pacific Investment Management Company LLC (PIMCO) and PIMCO Europe Ltd

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