New Zealand Gazette – 2014 – No. 86

Page 2426

✨ Financial Statements and Risk Management

EASTERN AND CENTRAL COMMUNITY TRUST INC

investment risk and to limit exposure to any one investment. Each asset class has a defined target allocation and is managed within a defined allocation range.

In addition, the Trust has a Risk Management Policy which includes a Tactical Asset Allocation Policy. This policy is to identify times when the Trustees should instigate a process to review the short term investment strategy of the Trust.

Currency Risk
Currency risk is the risk that the fair value of, or future cash flows from, financial assets will fluctuate due to changes in foreign exchange rates. The Trust has exposure to currency risk through its investments in offshore equities and bonds. The strategic investment policy requires full hedging of currency risk for overseas bonds, when held, and 50% hedging, on average, of currency risk for overseas equities. When exchange rates are at extreme levels (e.g. plus or minus more than 2 standard deviations from the long term average) the percentage of hedging is varied as determined by the Trust’s currency policy (e.g. raised up to 100% or decreased down to 0%). Hedging decisions are constantly reviewed. Currency risk is self managed with the Bank of New Zealand with a range of tolerance.

The Trust manages its foreign exchange risk by using forward exchange contracts to cover varying amounts of its foreign currency exposure. Such forward exchange contracts have the economic effect of converting foreign currency denominated balances into NZ dollars. These forward exchange contracts are not treated as hedges for accounting purposes. All contracts are with the Bank of New Zealand which has a Standard and Poor’s Rating of AA.

At balance date the Trust’s exposure to currency risk was as follows:

	2014 $	2013 $
Foreign currency denominated assets	80,605,974	80,904,305
Less fully hedged Funds	12,077,149	13,685,289
Less forward foreign exchange contracts	34,750,000	32,485,000
Unhedged currency exposure at 31 March	33,778,825	34,734,016

Unhedged currency exposure:

	2014 $	2013 $
USA/Canada	14,937,834	15,726,175
UK/Europe	12,397,166	1,953,033
Japan/Asia	-	1,065,540
Emerging Markets	-	3,830,004
Australia	6,443,825	12,158,264
	33,778,825	34,734,016

The following table details the three-month forward foreign exchange contracts outstanding as at 31st March 2014:

Currencies	Buy Amount	Deal Rate	Valuation Rate	Gain/(Loss)
	NZD	8 Feb 2014	31 Mar 2014	NZD
Australian Dollars	6,000,000	0.9236	0.9375	88,525
Euros	7,900,000	0.6062	0.6279	272,487
British Pounds	4,500,000	0.5020	0.5193	149,267
US Dollars	16,350,000	0.8187	0.8633	842,711
TOTAL	34,750,000			1,352,990

In 2014 the Fund Managers sold out of the Australian Listed Property Index Trust and reduced the investment in the Off Shore Bond Securities Index Fund. This reduced the exposure to Australian Dollars. Reinvestment within the portfolio included investment in Euro and British Pounds denominated Equities.

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