SRI Portfolio returns vs benchmarks

Model portfolio and index portfolio returns to 30 June 2022

Index returns to 30 June 2022

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

Notes:

Due to the general lack of availability of SRI index data, this analysis compares SRI model portfolio returns with standard unscreened market indices

All returns are in New Zealand dollars

Model portfolios are designed and supplied by the Consilium Investment Committee (CIC)

Growth assets refer to investments in shares and property

Income assets refer to investments in cash and fixed interest

Model portfolio returns are net of underlying management fees, but gross of custodial and adviser monitoring fees each asset

Long term expected returns are based on the CIC’s 2018/2019 strategic asset allocation review. These expected returns are net of underlying manager fees, but gross of custodial and adviser monitoring fees

Individual portfolios that deviate from the model portfolios will experience different returns

Past returns are no guarantee of future returns

Partner Firms monitoring certificate from Consilium Investment Committee (CIC) for the quarter ended 30-Jun-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 30-Jun-22

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

1. Dimensional Five-Year Diversified Fixed Int. Trust NZD Class: 3-year underperformance to 30/Jun/2022

The fund underperformed its long term benchmark by -1.51% pa, which exceeds our monitoring bands. Our initial analysis indicates this flag was the result of an additive effect of recent quarters underperformance.

2. Vanguard Ethically Conscious International Shares Index Fund: Change in personnel James Chatfield has been promoted to Senior Portfolio Manager, Ian Campbell has been promoted to Portfolio Manager, and Victoria Chai has been promoted to Equity Trader/Index Analytics. All three personnel work within the Australian Equity Index Investment Group.

We will be undertaking an analysis of both 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 Value Trust: underperformance for three years ended 31/Dec/2021

Investigation COMPLETE. Our analysis highlighted that the three year relative underperformance of the trust to end December 2021, was largely attributable to the incumbent factor loadings of the custom benchmark setting the relative return expectations for this trust at an unreasonably high level. Once these factor loadings were brought into line with the CICs own updated expected returns research, deviation versus the revised custom benchmark was reduced and the prior three years observed performance was in line with new expectations.

2.

Dimensional Two-Year Sustainability Fixed Int. Trust NZD Class: underperformance for three years ended 31/Dec/2021

Investigation COMPLETE. Our analysis highlighted that the persistent underperformance was attributable to compositional differences between the trust and the benchmark, in particular the overweights to sources of higher expected return such as the steeper yield curves of different nations.

3.

Dimensional Global Sustainability Trust NZD Hedged Class: outperformance for quarter ended 31/Mar/2022

Investigation COMPLETE. Our analysis highlights that the trusts sustainability exclusions in aggregate contributed to the significant underperformance through the quarter, with exclusions to high emitters such as Energy firms in particular being the main driver.

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

Investigation COMPLETE. Our analysis highlighted that the outperformance in the quarter ended 31 March was attributable to structural elements of the trust relative to its benchmark. Factor tilts towards high profitability value stocks were the main driver of outperformance, with selective regional and industry exposure also contributing positively.

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

Investigation COMPLETE. Our findings conclude that the outperformance is largely attributable to the same compositional factors that explain the recent positive quarterly deviations of performance, namely deeper value and the size tilt.

6. Harbour NZ Corporate Bond Fund: outperformance for three years ended 31/Mar/2022 Investigation COMPLETE. The CIC assesses that this 3-year flag was the result of an additive effect of three recent quarters of outperformance. We remain satisfied the fund was managed within its mandates over these quarters and their performance deviations are adequately explained.

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

Investigation COMPLETE. Our analysis highlighted that the underperformance was a result of the trusts corporate bond exposure, duration profile and compositional differences within currency allocation of the trust. The compositional analysis was insightful, and we remain satisfied the identified risk exposures are consistent with the trust mandate, and we identified no unexpected or unexplained risks.

8. Dimensional Emerging Markets Value Trust: Extraordinary event - Freezing of Russian stockmarket Investigation COMPLETE. Emerging Market Funds experienced an extraordinary event with the significant disruption to the Russian stock market. Dimensional demonstrated their ability to mange this change and have removed Russia as an eligible country of domicile for investment. The trust still holds securities here, however their valuation has been written down to zero. These securities will be sold when liquidity returns.

9. iShares MSCI EM SRI UCITS ETF (SUSM): Extraordinary event - Freezing of Russian stockmarket Investigation COMPLETE. Emerging Market Funds experienced an extraordinary event with the significant disruption to the Russian stock market. iShares demonstrated their ability to mange this change and have removed Russia as an eligible country of domicile for investment. The fund still holds securities here, however their valuation has been written down to zero. These securities will be sold when liquidity returns.

10. iShares MSCI EM SRI UCITS ETF (SUSM): Change in personnel Investigation COMPLETE. Although a change in personnel can create many challenges within a business, we are satisfied that the ongoing management and support of the fund will not be materially affected by this change, due to:

1. The fact that the fund mandate is stable, well established and unchanged.

2. The investment mandate follows an index replication investment process which significantly minimises the degree of discretion any individual portfolio manager can have in the funds’ allocation.

3. BlackRock has developed a highly automated compliance process to help ensure that portfolios are managed in accordance with their stated guidelines and applicable regulatory requirements.

11. Dimensional Global Bond Sustainability Trust NZD Class: Change in mandate Investigation COMPLETE. Through our regular monitoring discussions with Dimensional we were able to confirm that the investment strategies are entirely unchanged, this is merely a widening of the investable universe and has been introduced in response to the increased issuance of long duration bonds over the last few years. The CIC do not anticipate any change in the expected risk and return of the trust as a result of the change in mandate. We are satisfied the trust has passed this EDD review.

12. Dimensional Global Bond Trust NZD Class: Change

In Mandate

Investigation COMPLETE. Through our regular monitoring discussions with Dimensional we were able to confirm that the investment strategies are entirely unchanged, this is merely a widening of the investable universe and has been introduced in response to the increased issuance of long duration bonds over the last few years. The CIC do not anticipate any change in the expected risk and return of the trust as a result of the change in mandate. We are satisfied the trust has passed this EDD review.

Damon O'Brien Head of Investments and CIC Chairperson

Date: 23 September 2022