The Income fund rose +0.6% in February, slightly behind the benchmark which rose +0.7%.

The main influence on returns in February was the continued push and pull of short-term interest rate drivers. Towards the end of 2025, expectations for rate hikes in the official cash rate began to emerge, largely driven by a mix of commentary from officials and inflecting economic data. February saw this reverse, with the mid-month OCR review cooling expectations. This drove a sharp correction to short term interest rates, which boosted New Zealand dollar fixed income asset prices.

This drove the highlights for the month as bonds from issuers like TG Group and Watercare benefitted from yields falling from 0.3% to 0.4%. As yields fall on bonds, prices rise, so this drove the prices of their 2030 maturity bonds by roughly 2%. Importantly, the credit quality of both bond issuers remains solid, so the fund benefitted from these returns without offsetting credit concerns.

In contrast, Gartner bonds had a difficult month. The ‘SAASpocalypse’ is a term recently coined to describe the falling share prices of software businesses exposed to AI disruption. The thesis behind this sentiment shift is that AI models could disrupt software products by delivering lower-cost substitutes at speed. This poses a threat to Gartner’s market intelligence offering and contributed to an almost 30% drop in their share price in February. This led to a –0.6% fall in the price of the company’s bonds, as the market grew more concerned about their creditworthiness. We think that the short duration of the bond (maturity in 2028) should provide a buffer to further credit concerns. While we agree many businesses face existential risks, we believe this will take longer than current market conditions suggest, so we are happy to continue holding Gartner bonds for the time being.