The Income Fund rose +0.5% during April, behind the benchmark which was up +0.9%. Over the last year the fund rose +8.8%, ahead of the benchmark which was up +7.5%.

April was a volatile month, largely thanks to tariffs announced by President Trump early in the month. So-called ’Liberation Day’ introduced global tariff rates for goods imported into the United States at levels higher than markets had anticipated. This initially caused interest rates to fall as growth expectations revised lower, but in the following days this reversed based on increased concerns around borrowing levels and consistency of policy from the US Government. Fortunately, by the end of the month a combination of softening language from the White House and the market’s digestion of this news left bonds broadly unchanged.

Highlights for the month were those bonds with more interest rate exposure (longer maturity dates), primarily issued in New Zealand Dollars. The largest contributors to performance in this category were Westpac 2029 maturity bonds, Chorus 2028 maturity bonds and NZ Local Government Funding Authority maturity 2029 bonds. These bonds benefitted from lower interest rates in April as yields dropped (for the latter) from 4.12% to 3.90%. The primary reason for this was the reduced expectations for growth and inflation in the New Zealand market, incrementally driven by global growth concerns stemming from ‘Liberation Day’.

A detractor for the month was Mobico – a UK listed mobility company. The value of their bonds dropped during April after a lacklustre annual result combined with a disappointing divestiture announcement. One of their business units operates North American school buses, which has seen struggling operating results ever since COVID and the subsequent cost inflation environment. When we initiated a position in Mobico, this unit was already ‘for sale’ and we had expected an exit would generate significant cash flow which would allow for significant debt reduction. Disappointingly, while the sale did materialise, it was at the very low end of valuation expectations. This leaves us with lower confidence that other goals set by the company will be achieved, so we are refreshing our investment thesis and will decide on the best course of action in the coming weeks.