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Dimensional Five-Year Diversified Fixed Interest Trust – NZD Class
from CIC Yearbook 2022
by Consilium
Enhanced due diligence for the quarter ended 30 June 2022
Enhanced due diligence trigger
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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 Five-Year Diversified Fixed Interest Trust – NZD Class (“the trust”)
Benchmark: FTSE World Government Bond Index 1-5 Years (Hedged) (“the benchmark”)
The trigger for this analysis was long term tracking error (Appendix 1)
Fund return (Net of fee): -1.78% (p.a.), Benchmark return: 0.01% (p.a.), Deviation (Gross): -1.51% (p.a.),
Tolerance: ±1.51% (p.a.)
Following our analysis of the trust – specifically, the performance attribution – the CIC is satisfied the trust’s underperformance for the three years ended 30 June was due to structural elements of the trust relative to its benchmark The trusts overweights to sources of higher expected returns such as the steeper yield curves of different nations and the trust’s small corporate bond exposure, duration profile and compositional differences within each currency allocation have been the primary sources of underperformance
The compositional analysis of the analysed period in this report was insightful, and we remain satisfied the identified risk exposures are consistent with the trust mandate, and we identified no unexpected or unexplained risks.
We note that the trust is nimble and has the ability to quickly adjust to currencies with the highest expected return, which results in significant tracking error to the trust’s imperfect benchmark Due to this strategy the CIC have set wider tolerance bands, however the compounded effects of recent quarterly underperformance (highlighted in figure 2) have resulted in a long-term flag.
Based on all the above, the committee was satisfied that the Dimensional Five-Year Diversified Fixed Interest Trust passed this EDD review For further information please see the appendix on the following pages.
October 2022
