✨ Financial Statements
Notes to the financial statements
in New Zealand Dollars ($000's)
18 Financial Instruments (continued)
3.3 Pricing Risk
Pricing risk is the risk that the fair value of financial assets will increase or decrease as a result of changes in market prices, whether these changes are caused by factors specific to individual stocks or factors affecting all financial assets in the market. Price risks arise from the Trust’s investment portfolio (the Fund). As reported in the section on Significant Accounting Policies, the financial assets are valued at fair value as determined by reference to their quoted bid price at the reporting date, wherever this information is available.
Sensitivity to fluctuations in income for the Trust’s Fund arising from market risk are set out in the following tables provided by the Trust’s investment consultant, Russell Investment Group Limited.
Sensitivity Analysis for the Trust’s Portfolio 31 March 2009
| Asset Class | Asset Allocation 31 Mar 2009 | Long Term Expected Return p.a. | -1 Standard Deviation Return p.a. | 1 Standard Deviation Return p.a. |
|---|---|---|---|---|
| NZ Equities | 4.1% | 8.7% | -8.3% | 25.7% |
| Global Equities | 19.1% | 8.2% | -7.0% | 23.4% |
| NZ Fixed Interest | 28.1% | 5.9% | 2.6% | 9.2% |
| Global Bonds | 41.7% | 5.9% | 2.6% | 9.2% |
| NZ Cash | 5.4% | 5.3% | 3.8% | 6.8% |
| Hedge Funds | 1.1% | 5.3% | -0.1% | 15.9% |
| Total | 100.0% | 6.4% | 2.4% | 10.4% |
From this table it can be seen that the long term expected return of the Fund is 6.4% per annum and there is approximately a 68% probability that the return in any one year will be within the range of 2.4% to 10.4%. The Trust’s actual return for the year was (8.2%).
Sensitivity Analysis for the Trust’s Portfolio 31 March 2008
| Asset Class | Asset Allocation 31 Mar 2009 | Long Term Expected Return p.a. | -1 Standard Deviation Return p.a. | 1 Standard Deviation Return p.a. |
|---|---|---|---|---|
| NZ Equities | 4.7% | 9.2% | -7.8% | 26.2% |
| Global Equities | 23.8% | 8.7% | -6.2% | 23.6% |
| NZ Fixed Interest | 21.9% | 6.3% | 3.0% | 9.6% |
| Global Bonds | 36.0% | 6.3% | 3.0% | 9.6% |
| NZ Cash | 5.7% | 5.7% | 4.2% | 7.2% |
| CDFs | 2.6% | 7.8% | -10.2% | 25.8% |
| Hedge Funds | 5.3% | 8.3% | 0.3% | 16.3% |
| Total | 100.0% | 7.1% | 2.2% | 12.0% |
For that year the long term expected return was 7.1% per annum when there was a 68% probability that the return in any one year would be within the range of 2.2% to 12.0%. The actual return was 2.8%.
These sensitivity analyses are based on the volatility of each asset class and the Fund as a whole, as measured by plus or minus one standard deviation. The overall effect of the Trust’s diversified portfolio is to reduce volatility and stabilise investment returns over time.
Next Page →
NZ Gazette 2009, No 116
✨ LLM interpretation of page content
💰
Notes to the Financial Statements
(continued from previous page)
💰 Finance & RevenueFinancial statements, Financial instruments, Assets, Liabilities, Investment risks