OneAnswer KiwiSaver Scheme International Fixed Interest Fund

The International Fixed Interest Fund invests mainly in international fixed interest assets. Investments may include fixed interest assets issued by governments or international companies, and cash and cash equivalents.

The International Fixed Interest Fund aims to achieve a return (after the fund charge and before tax) that over the long-term is broadly in line with the relevant market index.

Minimum suggested investment timeframe is 5 or more years. The minimum suggested timeframe indicates how long to stay invested to manage short-term ups and downs and give your investment time to recover from any drops in value.

See Past updates for our funds.

Global bond markets weakened over the quarter as higher energy prices fuelled inflation concerns, driving government bond yields to multi-year and, in some cases, multi-decade highs. In the United States, the 10-year Treasury yield rose to 5.28% at quarter-end, up 81 basis points over the period, while the 30-year yield finished above 5.5%. Government bond yields in Europe saw similar moves.

Oil prices ended the quarter more than 25% higher but did see significant periods of volatility. Prices were particularly sensitive to developments in the Middle East, including attacks on key Saudi oil infrastructure, which increased concerns over potential supply disruptions.

Against the backdrop of persistent inflation concerns, many central banks began to tighten monetary policy. The US Federal Reserve (the Fed) lifted the fed funds rate by 25 basis points, its first hike since 2023. In its Summary of Economic Projections (SEP), the Fed said it expects one more rate hike by year-end.

Elsewhere, the European Central Bank (ECB) increased interest rates and revised its inflation forecasts higher, while the Bank of Japan (BoJ) continued the gradual normalisation of monetary policy, moving further away from the ultra-loose settings that had been in place for decades.

The fund invests in three distinct fixed interest strategies, managed by two external fund managers: Northern Trust Asset Management and PIMCO. This multi-manager and strategy approach enhances diversification and provides access to a broad spectrum of fixed income securities across global markets. All three strategies delivered negative returns during the quarter as bond markets fell sharply.

The PIMCO-managed International Aggregate Bond Fund was the weakest-performing strategy during the quarter largely due to its overweight position to US, UK and some euro bloc bonds, which fell sharply over the quarter. The fund manager noted during the quarter that with US 10-year real yields near all-time highs since the GFC, bonds are attractively priced.

Meanwhile, the ANZ Wholesale International Credit Fund also posted weaker returns over the quarter, reflecting the broad-based sell-off across global bond markets. However, underlying credit market fundamentals remained relatively resilient. While higher government bond yields weighed on fixed income returns, corporate credit spreads remained close to historically tight levels, supported by solid corporate balance sheets, resilient economic activity, and robust corporate earnings.

Finally, the ANZ Wholesale International Sovereign Fund, which passively tracks high-quality government bonds, also generated a negative return.