SRI Portfolio returns vs benchmarks

Model portfolio and index portfolio returns to 31 March 2022

Index returns to 31 March 2022

The indices used to calculate the index portfolio returns are as follows:

Notes: underlying manager fees, but gross of custodial and adviser monitoring fees

Partner Firms monitoring certificate from Consilium Investment Committee (CIC) for the quarter ended 31-Mar-22

Quarterly monitoring:

In the Partner Firm Service Agreement and Consilium Investment Committee Policy and Procedures Manual, the CIC outlined the following process for reviewing underlying investments.

All investment securities are reviewed on a quarterly basis and performance is measured against appropriate benchmark indices. Where a security’s performance is consistent with its mandate and in line with broad style and/or asset class returns, no further action will generally be taken.

However, a security may be placed on an ‘enhanced due diligence’ list, and subjected to a higher degree of scrutiny, for any of the following reasons:

- A change in the primary portfolio manager

- A significant change in the fund management company’s majority owner or ownership structure

- A more than 25% fall in the fund’s assets under management over a rolling one- year period (due to outflows, not market movement)

- Total fund assets falling below our minimum fund size thresholds at any time

- A change in the fund’s investment style, diversification and/or risk factor tilting

- An increase in the fund’s fees

- The fund exhibited quarterly tracking error versus a relevant benchmark outside its monitoring thresholds

- The fund exhibited a persistent deviation in tracking error versus a relevant benchmark outside its monitoring thresholds, measured over a rolling three-year basis, and allowing a volatility threshold appropriate for each fund

- An extraordinary event which, in the opinion of the Investment Committee, may impact on the manager’s ability to comply with the fund mandate in future

New flagged actions from monitoring for the quarter ended 31-Mar-22

We completed the monitoring of all of the above aspects for all underlying funds in your portfolios and found the following:

1. Dimensional Emerging Markets Value Trust: outperformance for quarter ended 31/Mar/2022

The Dimensional EM Value Trust outperformed its market benchmark by +5.41% which exceeds our monitoring bands. Our initial analysis indicates outperformance is due to the underweight of Russian securities and overweight to high profitability value stocks.

2. Dimensional Emerging Markets Value Trust: outperformance for three years ended 31/Mar/2022

The Dimensional EM Value Trust outperformed its long-term market benchmark by +4.03% which exceeds our monitoring bands. Our initial analysis indicates the trusts tilts towards the deeper value stocks contributed to outperformance.

3. Dimensional Five-Year Diversified Fixed Int. Trust (NZD Class): underperformance for quarter ended 31/Mar/2022

The Dimensional Five-Year Diversified Fixed Int. Trust (NZD) underperformed its market benchmark by -2.17% which exceeds our monitoring bands.

4. Dimensional Global Bond Trust/Global Bond Sustainability Trust (NZD Class): Change in mandate

The Dimensional GBT/GBST (NZD) experiences a change in mandate during Q1 2022, the upper maturity range for bonds that the trusts will primarily invest in will increase from 15 years to 20 years.

5. Dimensional Global Sustainability Trust (NZD Hedged): outperformance for quarter ended 31/Mar/2022

The Dimensional Global Sustainability Trust (NZD Hedged) underperformed its market benchmark by -2.73% which exceeds our monitoring bands.

6 Emerging Market Funds: Extraordinary event - Extraordinary event - Freezing of Russian stockmarket

All Emerging Market Funds experienced an extraordinary event with the significant disruption to the Russian stock market

7. Harbour NZ Corporate Bond Fund: 3-year outperformance

The Harbour NZ Corporate Bond Fund outperformed its long-term market benchmark by +0.40%.

8. iShares Funds: Management change iShares informed us of two separate management changes. EM IMI Equity Index had a key management change from Jennifer Hsui to Amy Whitelaw, SUSM had a key management change from Jonathan Van Ginneken to Dharma Laloobhai.

We will be undertaking an analysis of all 8 flags over the coming weeks, and we are aiming to have completed papers summarising our findings within the next three months.

Update on prior flagged actions:

1. Dimensional Global Small Company Trust: outperformance for the quarter ended 31/Dec/2021

Investigation COMPLETE. This outperformance is resulting from the value tilts taken by the trust. We also note that the outperformance was primarily delivered by compositional differences compared to the benchmark, with allocations taken to companies not within the benchmark leading to the bulk of the outperformance. We remain satisfied that the aggregate risk exposures are consistent with the trust mandate, and we identified no unexpected or unexplained risks.

2. Dimensional Global Sustainability Trust: outperformance for three years ended 31/Dec/2021

Investigation COMPLETE. Our analysis highlighted that the outperformance in the three years to December 2021 was attributable to the trust’s compositional differences compared to the benchmark. The trust’s sustainability considerations led to significant outperformance, with a deliberate overweight to Tech giant Apple, combined with the exclusion of Energy companies, such as Exxon Mobil and BP, leading to outperformance across the three-year period. We remain satisfied the identified risk exposures are consistent with the trust mandate, and we identified no unexpected or unexplained risks.

3. Vanguard Ethically Conscious International Shares Index Fund: outperformance for three years ended 31/Dec/2021

Investigation COMPLETE. Upon reviewing this EDD flag the CIC noted that the benchmark used in our initial assessment was different to the specific benchmark used by Vanguard. This was due to past data availability constraints for the benchmark, upon further review this benchmark is now available. Following our analysis of the fund and the discovery of the correct benchmark used by the Vanguard. The CIC assesses that the fund passes this enhanced due diligence flag.

4. Dimensional Emerging Markets Value Trust: Fund outflow

Investigation COMPLETE. Dimensional informed the CIC that this flag was due to cannibalisation resulting from the introduction of the Dimensional Emerging Markets Sustainability Trust. With the introduction of this fund in July 2021, significant assets from the incumbent Dimensional Emerging Markets Value Trust transferred to the new sustainable fund. The CIC is satisfied that the reduction in the fund’s AUM had no detrimental impact on the performance received by the remaining fund investors and it is also not expected to impact Dimensional’s ability to effectively manage the fund on an ongoing basis.

5. Dimensional Global Core Equity Trust: outperformance for the quarter ended 31/Dec/2021

Investigation COMPLETE. Our analysis highlighted that the outperformance in the December quarter relative to the custom benchmark was attributable to structural elements of the trust in particular the reduced exposure to small companies since 2020. This change occurred when the 5th factor in the Fama/French 5 factor model – reinvestment – was implemented. The custom benchmark has not been reflecting this reduced exposure and needs to be modified. However, we remain satisfied the identified risk exposures are consistent with the latest trust mandate, and we identified no unexpected or unexplained risks.

6. Funds Managed by Vanguard: Change in personnel

Investigation COMPLETE. We are satisfied that the ongoing management and support of the Vanguard funds will not be materially affected by this change, due to:

1. The fund mandates are well established, stable and remain unchanged.

2. The investment mandates all follow an index replication process which significantly minimises the degree of discretion.

3. At any point in time, the Head of Equity/Bond indexing is well supported by a large team of portfolio managers.

7. Dimensional Global Value Trust: outperformance for three years ended 31/Dec/2021

Work in progress

8. Dimensional Two-Year Sustainability Fixed Interest Trust (NZD Class): outperformance for three years ended 31/Dec/2021

Work in progress

Damon O'Brien Head of Investments and CIC Chairperson

Date: 23 September 2022