Dimensional Two-Year Sustainability Fixed Interest Trust

Enhanced due diligence for the 3 years ended 31 December 2021

Enhanced due diligence trigger

An enhanced due diligence (EDD) on a fund may be required for any number of reasons. Please refer to the CIC Policy and Procedures Manual for more detail.

Fund: Dimensional Two-Year Sustainability Fixed Interest Trust (“the trust”)

Benchmark: Bloomberg Global Aggregate Bond Index 1-3 Years (hedged to NZD) (“the benchmark”)

The trigger for this analysis was persistent underperformance during the December 2021 quarter (specifically for the 3 years ended 31 October 2021)

Fund return: 1 28% pa, Benchmark return: 1.96% pa, Deviation: -0.68% pa net of retail fees, -0.43% pa gross of fees. Tolerance: +/- 0.42%

Conclusion

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.

While the flag was for a three-yearly window, analysis of two particular quarters explained the three-year flag. The analysed quarters were extremely volatile and delivered a wide range of outcomes in the short term investment grade fixed income space and the tilts taken by the fund were generally detrimental. The risks taken during these two quarters were consistent with the mandated strategy to tilt to sources of higher expected return and were inside the trust’s risk limits.

Based on all the above,the committee was satisfied that the Dimensional Two-Year Sustainability Fixed Interest Trust is not taking any unknown risks and the fund remains our preferred vehicle to gain access to short term international fixed interest risk factors

For further information please see the appendix on the following pages

September 2022