The Income Fund rose slightly during May, returning +0.1% outperforming its benchmark which fell -0.2%. 

The largest contributor to outperformance was the fund’s underweight position to short term New Zealand interest rates. Late in the month, new RBNZ Governor Christian Hawkseby had his first official cash rate (OCR) meeting, where the central bank cut the OCR from 3.5% to 3.25%. This brings the cumulative reduction to 2.25% since last year’s peak of 5.5%, reflecting low economic growth and inflation expectations.  

However, May’s RBNZ release delivered a surprise in tone, signalling that rates may not fall much further. Prior to this meeting, some market participants had expected the OCR to bottom near 2.5%. As a result, the market repriced short-term rates higher, increasing about 0.25% as the market reset expectations.  

Corporate bonds also added to performance during May, as credit spreads on most bonds continued to tighten, signalling increased assurance in their creditworthiness. This was a continuation of late-April's rebound in confidence, after credit spreads widened during the volatile markets surrounding ‘Liberation Day’.  

Grifols was a notable outperformer, with their bonds rising +2.5% during the month after a solid first quarter result. Their release showed revenue and earnings growth momentum, continuing their multi-year rebound after a difficult trading period stemming from the pandemic.  

We initiated positions in two new issuers during the month – OI Glass and Voyage Care. OI is a regionally significant glass manufacturer that we believe will benefit from a trend towards localisation of packaging, as companies seek to avoid real or threatened tariffs. Voyage Care is a company we have previously invested in, and is the UK’s leading integrated care provider, serving community-based and managed care products. Both additions helped returns during May with their bonds rising +1.8% and +1.9% respectively. 

On the downside, the UK based mobility company Mobico continued to underperform in May as fears surrounding underlying performance continued. We reduced our exposure by roughly half early in the month which helped soften the impact to the fund’s performance. We are continuing our analysis to determine the best path forward for this investment.