The Income Fund rose +0.7% during the month, in line with the benchmark which also returned +0.7%.

The main driver of returns during June was a fall in New Zealand interest rates, which fell by about 0.2% over the month. This boosted the returns of bonds held by the fund, as lower yields benefitted higher cash prices.

The backdrop for lower yields in June was progress in negotiations between Iran and the United States, helping oil prices fall to pre-conflict levels. This was the primary driver of higher inflation expectations, which had caused interest rates to rise. As these fell, the market's focus turned to macroeconomic data which continues to be weak. This combination shifted some economists to call for the Reserve Bank of New Zealand to keep the OCR at its current 2.25% level, arguing that there is no longer any justification (from inflation or growth) to increase it.

Elsewhere, we added CDC Data Centre bonds to the portfolio in June. Issued to help construct very large data centre projects in Australia for international customers, these bonds come with a healthy initial coupon of 6.87% in Australian dollars. They have a good track record of delivering capacity to discerning customers with strict requirements. We also benefitted from the work of our colleagues in the New Zealand equity team who have held indirect investments in CDC through their investment in Infratil, which is a majority shareholder of CDC.

We exited Gartner in June after the credit spread on bonds lowered to levels insufficient to compensate us for AI-driven headwinds that may be ahead for the company. Gartner is a key provider of business intelligence services. While this is still highly valuable in an AI-enabled world, we think there are risks to the earnings power of their business model as intelligent synthesis of data becomes increasingly commoditized.