The Income Fund rose +1.2% during August, comfortably ahead of the benchmark which rose +0.8%.

For New Zealand fixed income markets the most notable development during August was the arrival of the much anticipated first OCR cut by the RBNZ. Arriving mid-month, the cut from 5.50% to 5.25% was expected, but represented a large shift in narrative from just May this year when potential rate hikes were still on the table. As is often the case, interest rates had done most of the heavily lifting before the announcement, with the key 2 year rate finding the lows the day after the announcement.

The biggest highlight for the Income Fund was Synlait which saw its bonds rally strongly on progress towards a fulsome re-capitalisation of their balance sheet. Major shareholder Bright Dairy and A2 Milk announced a jointly agreed shareholder plan to inject fresh capital into the business, providing clear runway for our bond maturity in December. We have been long time bondholders in Synlait, having long held the view that their milk infrastructure was a critical, and valuable asset. It was good to see the market continue to shift towards this view in August.

Elsewhere the only lowlight for the month was Netflix bonds which were down very slightly after credit spreads moved slightly wider. Netflix has been a strong performer for us since our first purchase in January 2020, having had its credit rating upgraded an astonishing five times by S&P over that period.