The Income Fund rose +0.7% during August, slightly behind the benchmark which rose +0.8%.  

The main driver of returns for the month was the drop in interest rates in New Zealand after the Reserve Bank of New Zealand reduced the official cash rate to 3% from 3.25%. More importantly than the rate itself, as part of the announcement the bank also released an update on their expectations for future interest rates. This saw a meaningful reduction in the outlook for short term interest rates in the coming year, with the low point for the OCR now likely to be around 2.6%, about -0.3% lower than in their May announcement. 

This drop in interest rate expectations drove bond yields lower, and prices higher, helping to boost returns for the fund. Our positions in NZD denominated bonds such as those issued by Westpac, Auckland Airport and Chorus all benefitted, rising between +1% and +1.5% during the month.  

Other highlights for the month were from Scentre Group, where customer demand for their premium malls continues to outperform a tepid consumer demand picture. Their Westfield branded shopping centres are generally the highest quality, best positioned malls in their respective locations. This helped their full year results, with the company raising their outlook for rent growth and lifting expectations for cash flow. 

A lowlight for the month was OI Glass which released a soft result for their European Glass division, reflecting a mixture of operational and demand factors. This saw bond prices fall slightly during August, taking returns lower by –0.8%. Fortunately, these operations are supported by the wider OI Glass group which is listed in the US. Demand there is more evenly balanced, with the trend toward onshoring driving stronger glass demand.