Fisher Funds has joined the now-majority of local fixed income managers to benchmark against a composite index.
In a note to clients last week, Fisher chief investment officer, Frank Jasper, said the manager would adopt the Bloomberg NZ Composite 0+ Year Index for its local fixed income funds from July 1. Currently, Fisher uses the S&P/NZX NZ Government Bond Index for benchmarking purposes.
“At this time, any multi asset strategies, such as the Fisher Institutional Balanced Fund, which have an allocation to New Zealand fixed interest will also change [to the new benchmark],” Jasper said.
The Fisher move follows a steady stream of local bond managers flowing to the composite index after AMP Capital NZ jumped first late in 2018 (formally switching on January 1 this year).
Both Harbour Asset Management and Nikko Asset Management subsequently followed suit, citing similar concerns about a mis-match between the traditional NZ government bond index and the typical real local fixed income portfolios that generally include a substantial allocation to corporate securities. BT also switched to the Bloomberg composite this May.
Jasper said while the Fisher local fixed portfolio had been “weighted strongly towards New Zealand government debt over the long-term”, the Bloomberg composite index was a better gauge of its actual asset mix over the long haul and the “investable universe”.
“… we recognise that as an active manager we do often invest in a wider range of securities than those issued by the New Zealand Government alone,” he said in the note. “These non-government investments typically include debt issued by local authorities, banks and companies.”
However, the composite index currently includes a roughly 20 per cent allocation to fixed income securities issued by offshore entities (so-called ‘supranationals’) in NZ dollars that somewhat dilutes the local flavour of the Bloomberg benchmark.
Bloomberg-followers now represent the majority of the small cohort of seven NZ fixed income managers tracked by consultancy firm, Melville Jessup Weaver (MJW). Just one outlier – ANZ – remains attached to the NZ government bond benchmark. (Russell Investments NZ fixed income fund also falls under Bloomberg rules given it counts Harbour as the sole underlying manager, for now.)
By funds under management about $5.3 billion is measured against the Bloomberg gauge, MJW figures show, while ANZ has close $1.7 billion in local bond investments.
Changing benchmarks is not a completely painless exercise for managers, potentially involving adjustments to both performance and remuneration metrics.
