Low yields.

[Nor]

Why are the Smartshares bond funds GBF and NZB paying such low dividend yields, about 1% and 1.6%? I would have thought their price should have gone down and yield up to approximate current rates.

[Snoopy]

Why are the Smartshares bond funds GBF and NZB paying such low dividend yields, about 1% and 1.6%? I would have thought their price should have gone down and yield up to approximate current rates.

Excellent question Nor. Here is the link to the information page on the NZ Bond trust

https://smartshares.co.nz/types-of-f...sh/nzbondtrust

(Edit 15/08/2023): The above web-page reference is dynamic and appears to be updated daily. This means that some of the numbers referenced in this post will no longer correspond to the numbers on that page).

If you go down to the 'portfolio characteristics' section, that shows a Bond Yield of 5.66%, for an average yield duration of 3.44 years. Fund charges at the top of the page indicate the 'annual fee' is 0.54%. So I would expect the gross return to unit holders to be something like:

5.66% - 0.54%= 5.12%

Yet historical gross dividend yield is a pitiful 1.66% ('Fund Details' top of page). Something is not adding up here! (Edit: see post 5 for the answer to this)

Returns for the year, after fees but before tax, were 1.78% over the last twelve months (as listed under NTA unit performance graph). According to the one year interactive chart, the unit price on 8th August 2022 (Actually the price for the trading day before the weekend which was 5th August 2022) was $2.99272. That means the value to unit holders one year later including distributions as at 8th August 2023 must be:

$2.99272 x 1.0178= $3.05055

The unit price on the interactive chart dated 8th August 2023 (actually the figure for the NTA on 7th August 2023) was $2.86737. The difference, which must be the distributions over the last 12 months, must therefore have been:

$3.05055-$2.86737=$0.183180, or 18.3c.

18.3c gives an historical gross yield based on the 7th August 2023 unit price of: 18.3c/$2.86737= 6.38%

That is very different to the 1.78% gross return declared. Would appreciate if you could double check my maths Nor. But I agree with your sentiment and expectations which do not appear to have been met.

SNOOPY

[Nor]

Will do when I'm sure I have my head around it.
Possibly there is some expectation that some of their bonds will mature and pay back at par, ie more than current worth? er just thinking.

[GTM 3442]

I'm picking that there is some buying and selling to cover new money in and withdrawals, which will affect the NAV and thus unit price and thus yield. There are still a whole bunch of bonds out there with low coupon rates (ie LGF120 1.50%) trading at good discounts to issue price, which will muddy the waters.

I think the worst investment you could make would be a bond fund held inside a custody platform.

[JeffW]

Excellent question Nor. Here is the link to the information page on the NZ Bond trust

https://smartshares.co.nz/types-of-f...sh/nzbondtrust

If you go down to the 'portfolio characteristics' section, that shows a Bond Yield of 5.66%, for an average yield duration of 3.44 years. Fund charges at the top of the page indicate the 'annual fee' is 0.54%. So I would expect the gross return to unit holders to be something like:

5.66% - 0.54%= 5.12%

Yet historical gross dividend yield is a pitiful 1.66% ('Fund Details' top of page). Something is not adding up here!

Returns for the year , after fees but before tax were 1.78% over the last twelve months (as listed under NTA unit performance graph). According to the one year chart, the unit price on 8th August 2022 was $2.99272. That means the value to unit holders one year later including distributions as at 8th August 2023 must be:

$2.99272 x 1.0178= $3.05055

The unit price on 8th August 2023 was $2.86737. The difference, which must be the distributions over the last 12 months, must therefore have been:

$3.05055-$2.86737=$0.183180, or 18.3c.

18.3c gives an historical gross yield based on the 8th August 2023 unit price of: 18.3c/$2.26737= 8.08%

That is very different to the 1.78% gross return declared. Would appreciate if you could double check my maths Nor. But I agree with your sentiment and expectations which do not appear to have been met.

SNOOPY

The calculation is much easier than that - it's just the dividends paid in the last 12 months - from NZX (1.202+1.218+1.09+1.239) = $.0475 / $2.869 share price to give 1.658% yield with is the same as on the NZX site. It is of course a 12-month historic yield, not a forward looking yield.

[Snoopy]

The calculation is much easier than that - it's just the dividends paid in the last 12 months - from NZX (1.202+1.218+1.09+1.239) = $.0475 / $2.869 share price to give 1.658% yield with is the same as on the NZX site. It is of course a 12-month historic yield, not a forward looking yield.

O I C. NZB historical dividends are here.
https://www.nzx.com/instruments/NZB/dividends

There is something very strange with that dividend record though. Why have the imputation credits of those last four dividends, -and only those last four-, shrunk to zero?

SNOOPY

[Snoopy]

I'm picking that there is some buying and selling to cover new money in and withdrawals, which will affect the NAV and thus unit price and thus yield.

You might be on to something there GTM. For a start, there is definitely a DRP operating as evidenced by the following NZX news releases:

14/06/2023: "NZ Bond ETF advises that the strike price for units, issued in lieu of dividend in respect of the distribution to be paid on 20th June 2023, is $2.866 per unit."

The number of units on the books on 20th June 2023 was 144,167,077
But the next entry where the number of units on issue changes is on 3rd July 2023, where the number of shares on issue drops by 50,000 to 144,117,077.

Since there was no increase prior to this and the 14th June announcement, I guess we can conclude that there were no new units issued as a result of the DRP?

It would seem the fund is open ended and the number of units change as people get in and out of the fund.

On my first live trading reference date of Monday 8th August 2022, after the reference date of Sunday 7th August 2022, the number of units on issue reduced from 103,151,618 to 103,111,618 - a drop of 140,000.
Compare this to my second reference date of 7th August 2023 with 145,717,077 units on issue

That means over my reference year: 145,717,077-103,151,618= 42,565,459 new fund units were created.

In terms of number of units, the fund has increased in size by 42,565,459/103,151,618 = 41.3% (!) This also means that all of those additional units were purchased in the 07/08/2022 to 07/08/2023 calendar year. Given the number of units on issue at the date 08-02-2023 (the half year points) was a mere 116,977,077 (which means an increment of 116,977,077-103,151,618= 13,825,459 in the first six months of my reference year), this indicates nearly 3/4 of those incremental purchases were made in the second six month period of my reference year.

SNOOPY

[JeffW]

O I C. NZB historical dividends are here.
https://www.nzx.com/instruments/NZB/dividends

There is something very strange with that dividend record though. Why have the imputation credits of those last four dividends, -and only those last four-, shrunk to zero?

SNOOPY

Potentially there is zero taxable income, if there's been the sale of bonds at a loss, so no tax payable, but they're still distributed the cash interest received. Not sure, but a possibility

[Nor]

Seems very dodgy to me. What applies to a single bond of yields up price down and vv must also apply to a collection of bonds eg a fund. How can people really be investing in these funds for 1% when they could get several times more at call in the bank?

[Snoopy]

Potentially there is zero taxable income, if there's been the sale of bonds at a loss, so no tax payable, but they're still distributed the cash interest received. Not sure, but a possibility

The managers of NZB cannot control when individual members want to sell out of this fund. That means as a 'default assumption', all bonds purchased must be assumed to be held to maturity (thinking about this, individuals purchasing the bonds have the same assumptions applied to them). But if a unit holder 'wants out', that means that a daily sale price that very likely does not match the maturity price is crystallized. And in a climate of rapidly climbing interest rates, such as we have had, that can mean a loss is crystallized. So what money was pulled out of NZB during the year in question (07-08-2022 to 07-08-2023)?

Withdrawal date	Unit Price	Withdrawal amount
08-08-2022	2.92000	(140,000)
09-08-2022	2.92559	(60,000)
-----------------------	------------------------	------------------------
18-08-2022	2.90950	(800,000)
02-09-2022	2.87028	(50,000)
15-09-2022	2.87317	(700,000)
20-09-2022	2.87227	(100,000)
03-10-2022	2.84814	(700,000)
07-10-2022	2.85347	(250,000)
12-10-2022	2.84121	(50,000)
14-10-2022	2.83791	(30,000)
12-10-2022	2.84121	(50,000)
18-10-2022	2.82811	(30,000)
19-10-2022	2.81931	(50,000)
01-11-2022	2.83887	(580,000)
09-11-2022	2.82308	(100,000)
21-11-2022	2.86125	(100,000)
24-11-2022	2.85705	(100,000)
30-11-2022	2.85239	(50,000)
07-12-2022	2.86209	(50,000)
16-12-2022	2.84635	(350,000)
19-12-2022	2.84862	(150,000)
23-12-2022	2.84395	(50,000)
28-12-2022	2.83352	(50,000)
29-12-2022	2.83391	(50,000)
04-01-2023	2.84582	(50,000)
06-01-2023	2.85102	(90,000)
09-01-2023	2.85597	(150,000)
24-01-2023	2.87520	(50,000)
23-02-2023	2.85254	(500,000)
15-03-2023	2.85707	(150,000)
20-03-2023	2.87276	(200,000)
22-03-2023	2.86806	(50,000)
31-03-2023	2.87115	(300,000)
03-04-2023	2.87603	(160,000)
04-04-2023	2.87712	(90,000)
06-04-2023	2.88227	(150,000)
13-04-2023	2.88218	(100,000)
26-04-2023	2.88285	(170,000)
01-05-2023	2.88764	(240,000)
10-05-2023	2.88715	(50,000)
16-05-2023	2.88898	(100,000)
29-05-2023	2.87757	(50,000)
30-06-2023	2.86463	(50,000)
04-07-2023	2.86428	(60,000)
13-07-2023	2.86642	(50,000)
20-07-2023	2.86878	(50,000)
25-07-2023	2.88285	(170,000)
26-07-2023	2.86890	(300,000)
27-07-2023	2.87185	(50,000)
02-08-2023	2.86651	(100,000)
03-08-2023	2.86580	(100,000)
07-08-2023	2.86737	(50,000)
Yearly Total to 10-08-2023		(8,020,000)

SNOOPY