The key investment objective of the Cash, CashPlus, Conservative, Balanced, and Growth Funds is to deliver returns that, over the relevant investment timeframe, after taking account of all fees and taxes, exceed that investment fund’s benchmark with lower volatility (i.e. less risk) than the benchmark.
The investment objective of the Default Investment Fund is to deliver a benchmark return after taking account of all fees and taxes.
All investment objectives are set with the explicit recognition that there will be variance in results and periods where an investment fund will fail to meet or exceed investment objectives.
Investments are held across a reasonably large number of assets, securities, sectors, countries and/or industries in order to achieve sufficient diversification. There is also a strong focus on liquidity of the underlying assets so that assets can be sold within a reasonable timeframe without having a material adverse effect on the price of those assets.
The asset class limits of each investment fund are set out in the table below:
|Investment Fund||Cash||Fixed interest||Shares|
|CashPlus||40% - 100%||0% - 60%||0%|
|Default||75% - 85%||15% - 20%|
|Conservative||0% - 100%||0% - 20%|
|Balanced||0% - 100%||0% - 70%|
|Growth||0% - 100%||0% - 100%|
See the Statement of Investment Policy and Objectives (SIPO) for more details on the assets included in the cash, shares and fixed interest asset groups.
The asset class limits ranges listed above refer to the underlying exposure and not the vehicle by which the exposure is obtained. The Manager may invest directly into the asset class, or gain exposure to the asset class indirectly (e.g. through a unit trust or other type of fund).
Avoiding excessive exposure to specific shares or issuers is important to protecting members’ wealth and to that end the Investment Manager has four important in-house investment guidelines.
The Manager and the Investment Manager will take reasonable care to ensure that:
a. Direct exposure to a single commonly recognised investment manager (including any related parties of that investment manager) is limited to 50% of the assets of each investment fund.
b. Direct exposure to any one underlying security (e.g. equity or fixed interest security) is limited to 7.5% of the assets of each investment fund. Cash and derivatives are excluded, but remain subject to the diversification principle.
c. Direct exposure to fixed interest securities of any one underlying issuer (e.g. bank or corporate) is limited to 15% of the assets of each investment fund, unless the issuer is either of:
(i) The New Zealand Government; or
(ii) The New Zealand Local Government Funding Agency Limited (or its successor, or an entity issuing securities on its behalf),
in which event, direct exposure to fixed interest assets issued by either of them is limited to 50% of the assets of each investment fund.
d. Broader exposure (e.g. cash and derivatives) to any one underlying issuer is limited to 50% of the assets of an investment fund.
For fixed interest assets, the Manager and the Investment Manager will take reasonable care to limit total exposure to non-investment grade credit to no more than 25% of an investment fund.
Given the range of assets and issuers and in some cases the complex relationships that exist in financial markets it is important to see the above as guidelines rather than rigid rules.