Harbour Corporate Bond Fund

Enhanced due diligence for the quarter ended 31 March 2022

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: Harbour Corporate Bond Fund (“the fund”)

Benchmark: S&P/NZX A-Grade Corporate Bond Index (“the benchmark”)

The trigger for this analysis was long term tracking error (Appendix 1)

Fund return (Net of fee): 0.17% (p.a.), Benchmark return: 0 21% (p.a.), Deviation (Gross): +0.40%,

Tolerance: ±0.40%

Enhanced due diligence checklist

Has the investment mandate changed? (Appendix 2) No ✓

Were the risk levels acceptable and within mandate (Appendix 3)? Yes ✓

Were there any special considerations (Appendix 4)? No ✓

Conclusion

From 2020 Q3 to 2021 Q1 the fund exhibited three straight quarters of material outperformance which were attributable to the fund’s compositional differences relative to the benchmark. Our findings concluded that the aggregation of outperformance exhibited during these three quarters created an additive effect that resulted in this 3-year outperformance flag

Relative duration, diversification of sectors, exposure to government inflation-linked securities and credit risk were some of the primary drivers which lead to the three straight quarters of material outperformance. Please see appendix 3 for further details. In each of these quarters, the CIC were satisfied the fund was managed within its mandate and the additional performance was adequately explained by these allowable exposures.

Given the additive nature of this three yearly flag, we equally remain satisfied that the fund’s exposure levels remained within mandate and broadly in line with historical observations. We also identified no unexpected or unexplained risks. This has been a volatile period for the asset class and the increase in volatility has been the primary source of increased tracking error over the recent quarters.

Based on all the above, the committee was satisfied that the Harbour Corporate Bond Fund passed this EDD review. For further detail please see the appendix on the following pages.