The Fund performed well in July, up +0.5%, ahead of the benchmark which was up +0.3%.  

The main highlights driving this were generally strong performance from corporate bonds, where credit spreads fell, driving bond prices higher. 

In Macro news, the Reserve Bank held the official cash rate steady at 3.25% - the first ‘no change’ announcement since rate cuts began roughly one year ago. The bank pause is unlikely to last though, as the meeting for early August has the market pricing an over 90% chance of a cut to 3.0%. The driving factor was late July’s weaker than anticipated inflation data, with annual changes now likely coming closer towards the RBNZ’s 2% target sooner than previously thought. 

Highlights for the month included exits from two corporate bond positions after strong returns over the last year. Charter Communications bonds benefitted from a reduction in borrowing as the company sought to acquire a competitor (Cox) earlier this year. This helped push up bond prices as investors became more confident in the financial strength of the business. As a result, Charter bonds returned over 7.5% during the last year, ahead of the benchmark (+5.2%). We exited the position after the strong run, selling at a yield of 4.7% which we think is relatively unattractive.   

Grifols was an even stronger performer, up more than 9% year to date. At times this investment has been a detractor to the fund, as the road to pre-covid earnings was rockier than expected. 2025 proved to be worth the wait however as earnings accelerated on the back of strong cost controls. This provided a strong foundation for yields to fall from 6.75% to about 4.5%, driving bond prices higher and leading us to sell our bonds to reinvest elsewhere. 

Our largest detractor for the month was Gartner where our 2028 bonds lagged the stronger performers above. Gartner provides research services globally, leveraging a unique dataset for industries that require hard data to make critical investment decisions. While the company is still seeing earnings growth, the market is beginning to worry about the impact that advanced AI models may have on their business. We’re doing a deep dive to investigate whether this might impact their ability to repay their debts. This will help inform our positioning for Gartner and other AI-impacted issuers in the coming months.