The Trust Management charity-focused fund manager has swapped out State Street for a BlackRock iShares indexed international fixed income product among a series of tweaks to its new portfolio investment entity (PIE) selection.
Post the manager move, the roughly $50 million Trust offshore fixed income money now lives in the iShares ESG Global Bond Index Fund, an Australian unit trust with exposure to both government and credit securities.
Previously, Trust invested in a pure sovereign bond State Street fund for its international fixed interest allocation.
In a note to investors, Trust said the switch to a more diversified, passive approach reflected the need to eke out more income in a low-interest environment.
“High rated corporate bonds can provide more income than sovereign bonds without materially changing the level of risk,” the note says.
“With long dated government bond yields now sitting at record low levels, the new strategy is expected to deliver stronger returns given its higher income yield and shorter term, whilst still providing important defensive characteristics for a diversified portfolio.”
However, Trust has retained State Street as global equities manager, although the underlying fund now includes broader “sustainability criteria” covering climate change targets in addition to a wider exclusion policy that “now prohibits exposure to companies that experience severe ESG controversies and are violators of the United Nations Global Compact”.
Trust has also joined the local industry trend by benchmarking its in-house managed NZ fixed income portfolio to the Bloomberg NZ Bond Composite 0+ Year index rather than the previous S&P government bond benchmark.
Former BT Funds NZ head of investment solutions, Matthew Goldsack, replaced John Williams as Trust head of investments in January this year, just prior to a major restructure of the scheme products under PIE rules.
Established to provide tax-effective fund options to the NZ charity sector, Trust originally used the group investment fund (GIF) structure to manage assets.
Unlike PIEs, GIFs are tax-free for the manager, leaving the underlying investors responsible for paying tax at their respective marginal rates – which can be zero for charities.
Trust has now wound up the GIFs with all funds operating as PIEs, which allows the manager to continue to offer a zero-tax option for charities while also making its products more attractive for other wholesale investors.
Goldsack said since the PIE transition, Trust had picked up a couple of new clients.
“[The PIE change] has enabled us to talk to a broader range of clients,” he said. “As well as charities, we also deal with community trusts, faith-based organisations, educational providers and iwi.”
About 75 per cent of the Trust $2 billion or so assets under management and advice are in direct property assets.