Starting with the Reference Portfolio 

It all starts with the Reference Portfolio, a notional portfolio of passive, low-cost, listed investments suited to the Fund’s long-term investment horizon and risk profile. The Reference Portfolio is currently made up of 75% global equities, 5% NZX-listed stocks, and 20% fixed income securities. 

Actual portfolio and active investments 

About half the Actual Portfolio consists of Reference Portfolio assets, passively managed (the Passive Portfolio). The remainder consists of our Active Investments, investments we have made based on the conviction they will provide a better risk-adjusted return than the Passive Portfolio. 

Benchmark and opportunity cost 

The Reference Portfolio is both an important benchmark for the Actual Portfolio, and a way to clearly assess the opportunity cost of an active investment. In short, we only undertake active investment when we have a high level of confidence that it will, over the long term, be better than investing passively. 

We apply the same criteria when assessing opportunities for active investment in New Zealand. 

Growth and risks of local investments 

Over the past 15 years, the dollar value of our local investments has grown more quickly than nominal GDP; however, the proportion of New Zealand assets relative to the size of the Fund as a whole has decreased. This reflects the growth rate of the Fund, compared to the pool of available investment opportunities. 

While our local knowledge, our size, and our sovereign status work in favour of us investing in the local market, we also need to factor in the risks associated with asset concentration, with the relative illiquidity of New Zealand assets, and with allocating a disproportionate amount of capital to a single market.