The Income Fund returned +0.53% in June - slightly ahead of its benchmark which returned +0.45%.

June was a relatively quiet month for markets, which was a welcome respite from the still fresh memory of the April’s tariff related volatility. Interest rates were broadly stable, with shorter term rates in New Zealand falling slightly. This was driven by concerns that the economy is still not responding to the lower Official Cash Rate, now at 3.25%. With a new Reserve Bank Governor in the role (Christian Hawkseby), we are taking a fresh look at statements to gauge how the OCR may track in the coming months. We think the economy is likely to need further stimulus (via a lower rate) as signs of recovery are yet to emerge.

Highlights for the month came from those investments with higher initial yields such as those issued by Westpac Bank, where yields fell in June, driving returns higher by about 2.5%. Banks are generally benefitting from high profit margins as the differential between savings rates and lending rates remains high.

On the downside, Mobico continued to drag returns in June. The company is facing significant headwinds in its UK bus and German Rail business lines due to higher input costs, particularly wages. We have been reviewing our investment thesis and adjusting our position sizing down in this investment. Fortunately, this has limited the impact on the overall fund return to less than -0.1%. We have challenging questions to put to the company's senior leadership and are looking forward to speaking with them in the coming days. Following this we will refresh our investment thesis fully to decide on the best path forward for this investment.