Low yields.

[Snoopy]

It is unknown if they are 'marking to market' or still valuing them at face value. The low yield would be explained by not marking to market.

If you look at the 31st July 2023 monthly report here
https://smartshares.co.nz/types-of-f...sh/nzbondtrust

Under 'Portfolio Characteristics', the fund yield is listed as 5.59%. If I look at the portfolio constituents from post 14, there is only one bond with a coupon rate greater than that: Meridian Energy's 5.91% bond. This indicates to me that the capital value of those lower interest rate bonds must have been marked down.

There is no other way to achieve a 5.59% current portfolio yield, unless these mark downs were done.

You can't see how many of each bond they have, which means you have nothing to divide 'the dollar value of the individual constituent' by to find out what they consider to be its unit worth.

I am wondering if you need to know that? We don't know which constituents NZB are buying or selling either - as unitholders opt to put more money into NZB or take it out.

But if we know:
a/ The weighted average interest rate of the entire NZB portfolio and, as an example,
b/ A reference government stock rate which is changing but can be pinpointed on a particular day (say the five year rate),

THEN we can work out the average capital loss carried by the whole NZB fixed interest portfolio. This was the way I was considering tackling the valuation problem.

SNOOPY

[Snoopy]

It is unknown if they are 'marking to market' or still valuing them at face value. The low yield would be explained by not marking to market.

If you look at the 31st July 2023 monthly report here
https://smartshares.co.nz/types-of-f...sh/nzbondtrust

Under 'Portfolio Characteristics', the fund yield is listed as 5.59%. If I look at the portfolio constituents from post 14, there is only one bond with a coupon rate greater than that: Meridian Energy's 5.91% bond. This indicates to me that the capital value of those lower interest rate bonds must have been marked down.

There is no other way to achieve a 5.59% current portfolio yield, unless these mark downs were done.

I should add that there is a third option which sits between 'the NZB portfolio was marked down' and 'the NZB portfolio was not marked down'. Perhaps the portfolio was only partially marked down, triggered by the fall in capital value of bonds actually sold at a loss, while the remainder of the bonds -still on the books- are held at purchase value?

SNOOPY

[GTM 3442]

At its simplest and crudest, the basic equation of bond funds is a pre-tax yield of 4%, with a management fee of 1%.

This is factually inaccurate but emotionally correct.

[Nor]

Snoopy said
"Under 'Portfolio Characteristics', the fund yield is listed as 5.59%. If I look at the portfolio constituents from post 14, there is only one bond with a coupon rate greater than that: Meridian Energy's 5.91% bond. This indicates to me that the capital value of those lower interest rate bonds must have been marked down."

I agree and it is very perceptive of you to have thought of it.

Still a problem of why the div yield which they actually pay is so much below the fund yield which is anything they choose to say it is. Perhaps div yield is so low because they've cleverly had a lot of money mature at just the right time to catch the higher rates and the next dividend is going to be ENORMOUS, only hardly anybody knows. Seems to me to be a lack of information about this. I thought markets were supposed to be informed. Haven't digested the rest, anything over an inch and a half takes me a while.

[Snoopy]

Still a problem of why the div yield which they actually pay is so much below the fund yield which is anything they choose to say it is. Perhaps div yield is so low because they've cleverly had a lot of money mature at just the right time to catch the higher rates and the next dividend is going to be ENORMOUS, only hardly anybody knows. Seems to me to be a lack of information about this. I thought markets were supposed to be informed. Haven't digested the rest, anything over an inch and a half takes me a while.

I remember Buffett once said: "Don't invest in anything that you do not understand.'

Perhaps this explains why I have only dipped my little toe into the bond investment pond up to now. The problem is with bond returns now becoming meaningful (except for NZB that is), I can't continue to ignore the bond market.

How is this for a revelation on NZB. I thought it was the 'NZ Bond Fund', but apparently the official name is the 'NZ cash fund'. Now look at the fund objective from the link below:
https://www.nzx.com/companies/NZB/analysis

"The NZ Cash Fund's investment objective is to provide a return (before tax, fees and other expenses) that outperforms the S&P/NZX Bank Bill 90-Day Index over rolling one-year periods. The S&P/NZX Bank Bill 90-Day Index is made up of a portfolio of bank bills with a maturity of 31 days to 90 days."

So let me get this straight. The NZB fund has bought a plethora of multi year bonds with the grand ambition of outperforming short term bank bills with a maximum duration of 90 days!?! Unless short term interest rates really spike, this seems a very low bar these NZB fund managers have set themselves. Do the NZB fund managers even have to get out of bed in the morning?

SNOOPY

PS Have re-edited my post 22 several times, and corrected some errors. I hope it is now easier to follow

[Nor]

"How is this for a revelation on NZB. I thought it was the 'NZ Bond Fund', but apparently the official name is the 'NZ cash fund'."

Could it be a mistake? There is also an NZ Cash Fund ETF NZC listed.

Luckily there is no company whose performance will be affected either way by my understanding or lack thereof.

[Snoopy]

"How is this for a revelation on NZB. I thought it was the 'NZ Bond Fund', but apparently the official name is the 'NZ cash fund'."

Could it be a mistake? There is also an NZ Cash Fund ETF NZC listed.

Looks like you are right Nor
https://www.nzx.com/companies/NZC/analysis

The description for the NZC fund exactly matches that of the NZB fund. It looks like somebody has just taken the NZC information and copied and pasted it under the NZB header. If I was the owner of that NZB fund, I would be furious to have my fund misrepresented like that. I might even think about suing for gross misrepresentation and resultant loss of business, So who is the owner of that Smartshares NZB fund anyway? Oh wait, it is the NZX itself!!! Gross professional incompetence?

SNOOPY

[Nor]

Are you saying that bond redemptions can adversely affect the value of the holding of those still in the fund? Seems wrong, that that should occur that is.

[Snoopy]

Are you saying that bond redemptions can adversely affect the value of the holding of those still in the fund? Seems wrong, that that should occur that is.

If you are investing in a 'closed fund' that is accepting no more new money from clients then 'no'. Because redeeming money from such a fund is just selling your existing fund units to someone else.

HOWEVER, the picture changes if you are investing in an open fund such as NZB that has no limit on the extent of cash contributions. In that instance, then the answer is 'yes'. If you wish to withdraw units from NZB in the current market at short notice (as all withdrawal notifications are), then it is very likely some bonds will have to be sold at a loss to meet your repayment demands. Fortunately you personally do not suffer the burden of that loss alone, because the burden of that loss is spread over all the unit holders in the fund. This means that you personally get your money out shouldering just 0.0001% of that loss (0.0001% being the value of your holding sold in proportion to the total value of the fund) whereas the rest of the loss (99.9999%) is shared around the unit holders that remain. It is an example of fund management with a 'communistic tint', where all losses are shared equally.

Very good for you if you want out. Perhaps not so good for those who remain. But the losses you caused to others by your 'sale demand' only affect their balances by a 'tiny bit'. Perhaps half a cup of coffee per year? And since coffee isn't that healthy for you anyway, it is probably best if you think of yourself as providing a 'health benefit' to others by selling out. You, as a seller, are a 'national health hero' improving the health of a whole nation (or all the other unit holders at least). Doesn't that make you feel good?

SNOOPY

[Nor]

With these funds you can buy and sell on market but also invest and withdraw directly. For why I wonder.