Harbour Asset Management has followed fellow Wellington-based fund manager AMP Capital across to a new benchmark for its NZ fixed income fund.
Christian Hawkesby, Harbour head of fixed income, said the firm’s approximately $525 million NZ Core Fixed Interest Fund would formally adopt the Bloomberg NZ Bond Composite 0+Y Index as benchmark early next January.
In October AMP Capital told clients it would shift to the Bloomberg composite index for the roughly $2 billion NZ Fixed Interest Fund on January 1 next year from the NZ government bond index used by virtually all other local managers.
Currently, Harbour – alone among its peers – measures the NZ fixed performance against a bespoke metric split evenly between local government and corporate bond indices.
“When we launched the core NZ fixed income fund seven years ago we knew that the government bond index wasn’t the right benchmark for the actual mix of underlying assets,” Hawkesby said. “It wasn’t the best way for clients and consultants to understand how we add value or not.”
Local fixed income managers tend to vary their holdings considerably across government and corporate securities, which makes the pure NZ government bond index a poor yardstick of actual investment strategies.
But Harbour’s 50/50 solution has created its own problems, he says in a note to clients.
“… a challenge of using a different benchmark from the rest of the industry has been that it has affected the ease with which investors can make competitive comparisons between our Fund and others,” Hawkesby says in the note.
He said Harbour’s homemade benchmark was reasonably similar to the Bloomberg composite index.
Since 2014 the performance of the Harbour 50/50 benchmark has varied between -0.28 per cent to +0.10 per cent relative to the Bloomberg composite. As an active manager, Harbour uses the benchmark as a relative performance gauge not for portfolio construction purposes.
“Given the strong similarities between our existing benchmark and the Bloomberg NZ Bond Composite 0+Y Index, the change will not require any modification in our existing outperformance target of 100 basis points per annum over a rolling 3-year period,” the Harbour note says.
AMP Capital would adjust its outperformance target for the NZ fixed income fund down by 25 basis points after shifting to the new composite benchmark next year, the manager told clients last month.
Hawkesby said with AMP Capital and Harbour now committed to the composite index it might encourage other managers to follow suit.
“Hopefully, the whole industry will coalesce around the composite benchmark,” Hawkesby said.
Harbour currently manages about $4.5 billion including about $2 billion in NZ fixed income spread among the core fund and direct mandates.