What happened this quarter (3 months to 30 September 2020)
During the quarter, most equity markets continued their strong run off March lows, with some indices in the US hitting record highs. Given cash tends to outperform in periods of economic uncertainty and market downturns, cash underperformed over the third quarter.
Globally, bond markets had a relatively quiet quarter as interest remained at or near all-time lows. After aggressively cutting rates and/or increasing quantitative easing earlier in the year, central banks held this accommodative stance, reaffirming that interest rates would remain low for a prolonged period. In fact, in September, the US Federal Reserve said it expects the fed funds rate to remain at zero through to 2023.
It was a busier quarter in domestic fixed interest markets, with positive returns for bondholders as interest rates fell sharply – a scenario that generally supports bond prices. The fall in interest rates came after the Reserve Bank of New Zealand, at its August meeting, increased its bond-buying programme to $100 billion and noted that a negative OCR is a policy tool it could implement.
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What does the fund invest in?
The fund invests mainly in cash and cash equivalents. These may include investments issued by New Zealand-registered banks, the New Zealand Government, corporations or local authorities, or non-New Zealand governments.
This chart shows the mix of assets that the fund generally intends to invest in.
See the fund's actual investment mix on page 3 of the Fund update.