September, 2023
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/advancecashmulti-blendfund.pdfAugust, 2023
In August, equities lost momentum and weakened (in local currency terms) after a strong rally over recent months. On a relative basis, US equities outperformed most major developed and emerging markets, while growth stocks generally outperformed value. Fixed income returns were broadly flat to slightly negative. The real asset sector saw the largest declines, with global REITs and infrastructure down markedly.
A combination of weaker forward-looking indicators, a modest uptick in inflation data, particularly in the US, and Fitch Ratings’ downgrade of its US credit rating at the start of August, impacted returns.
Composite purchasing manager indices (PMI) continue to soften across the globe with the US Composite PMI falling to a six-month low in August. A similar scenario for the Eurozone, China, UK and Australia, however, Japan bucked the trend with a marginally higher reading. Consumer confidence continues to weaken with increasing signs of consumer distress, such as rising credit card and auto-loan delinquencies. After a period of strength, global labour markets appear to be cooling off. US employment data saw a distinct weakening in August with a solid uptick in its unemployment rate (+0.3% to 3.8%).
Headline inflation dropped sharply in the Eurozone and UK, largely driven by base effects as the 2022 inflationary spike rolls off. Elsewhere, inflation ticked up slightly in the US as a bounce in energy prices fed into its CPI numbers, however, CPI data was broadly unchanged in Japan and China.
At the annual summit in Jackson Hole, Wyoming, central bankers expressed cautious optimism, while acknowledging inflationary expectations remain elevated. Federal Reserve Chairman, Jerome Powell, reiterated the Fed’s goal of bringing inflation down to its 2% target and is prepared to lift rates further if required. The Bank of England raised interest rates for the 14th consecutive month with its policy rate now sitting at 5.25%. On the flipside, the People’s Bank of China introduced a number of easing measures, cutting its key interest rate (1yr Loan Prime Rate) to a record low of 3.45%.
In terms of August returns, Hedged Developed Markets Overseas Shares declined -1.9% and Unhedged Emerging Markets Equities dropped -2.4%. Hedged Overseas Government Bonds delivered a narrow loss of -0.3% over the month as government bond yields experienced an uptick in most major regions. Using 10 year government bonds as a guide, US yields saw a jump of 16bps, both Japan and UK were up 6bps, however, there were slight declines for German and Australian 10 year yields.
Australian Shares returned -0.8% in August, outperforming hedged overseas counterparts. Key contributing sectors were Consumer Discretionary (5.8%) and Real Estate (2.2%), whereas Materials (-2.0%) and Consumer Staples (-3.1%) detracted.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/FP106-Advance-Cash-Multi-Blend-Fund-Aug-2023.pdfJuly, 2023
In July, global equity markets maintained current upward momentum with most regions delivering solid, positive returns. On the other hand, fixed income performance was mixed, although in this “risk on” phase of the cycle, riskier parts of the sector fared better.
A combination of further declines in headline inflation, resilient economic data, particularly from the US, and market expectations that the current interest rate hiking cycle is nearing an end, led to positive investor sentiment throughout the month.
The advanced Q2 2023 US GDP growth figure was reported late month, coming in at 2.4% and surprising market economist estimates of 1.8%. On the flipside, UK and Eurozone growth was close to flat. Benefitting from the base effects of emerging from its extensive 2022 Covid lockdown, China’s GDP growth rate was measured at an annualised 6.3%, though a little below 7.3% expectations. Forwardlooking composite purchasing manager indices (PMI) kept falling across the globe in July, with Japan the only region holding steady. PMIs for the services sector continue to outpace manufacturing though are easing towards 50, an important level that is considered the line between expansion and contraction.
Inflation data continued to decline, somewhat aided by the impact of last year’s energy price surge rolling off. US headline Consumer Price Index (CPI) fell to 3.0% p.a and is at the lowest level since early 2021. Similarly, CPI data across the UK, Eurozone and Australia, continues to show easing inflationary conditions, albeit at higher levels than the US. CPI has flatlined at near zero in China. Japan was the only major country that recorded a marginal increase in its inflation rate during Q2 2023. Central banks continued to err on the side of caution, increasing rates by 25bps in the US and Eurozone and 50bps in the UK, where inflation remains the highest among major developed economies.
Central banks continued to emphasise a data-driven approach to future rate adjustments. In the US, which is furthest ahead in the inflation cycle, markets are now pricing in a greater than 50% chance that the Fed’s policy rate has peaked and interest rate cuts maybe forthcoming in 2024.
Over July, Hedged Developed Markets Overseas Shares delivered a 2.8% return. US indices were broadly in line with international developed markets, however, Emerging Markets (unhedged) outperformed with a positive 4.9% return. Value modestly outperformed growth over the period, although when looking on a yearto-date basis, mega-cap tech stocks still dominate returns and has led to increased market concentration within that segment of global markets. In the US, with roughly half of S&P500 companies having reported their Q2 2023 earnings, FactSet currently projects a 7% quarter over quarter (QoQ) earnings decline, which would be the softest quarterly outcome since the height of Covid’s impact. That said, to date the majority of companies have reported better than expected earnings results.
Hedged Overseas Government Bonds returned -0.4% over the month, as bond yields across most regions increased in July. Yields on both key long bonds in the US (10-year and 30-year) rose by approximately 15bps over the month. Outside the US, Japan’s 10-year yield rose by around 19bps, which is noteworthy following the Bank of Japan’s announcement that it will further increase the upper tolerance range for the 10-year yield (now 1.0% vs 0.5% previously). The UK was the only major economy where the 10-year yield fell, albeit modestly.
Australian Shares returned 2.9%, marginally outperforming their overseas counterparts in July. Financials (4.9%) and Energy (8.4%) were the strongest sectors of the market, while Healthcare (-1.5%), and Materials (1.4%) detracted.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/FP106-Advance-Cash-Multi-Blend-Fund-Jul-2023.pdfJune, 2023
In June, global equities, commodities and REITs posted strong returns, while bonds were generally flat with credit outperforming government bonds.
Markets continue to price in a soft landing as news flow remains focused on falling headline inflation, a potential end to the global interest rate hiking cycle and broad economic resilience, despite challenges for some sectors, such as regional banks.
Inflation continues to edge down in most major economies raising hopes that the hiking cycle is near an end in most regions. Although the Federal Reserve kept rates on hold for the first time in over a year, forward guidance was more hawkish than expected, which weakened the positive momentum that markets carried during the first half of the month. The ECB and RBA hiked rates by 25bps each, while the Bank of England was compelled to hike by 50bps, given stubbornly elevated levels of inflation in the UK. China continued to ease as its expected economic recovery has been underwhelming. Labour markets remain resilient, with unemployment only marginally rising in some regions, however, remaining close to multi-decade lows.
Volatility in rate markets fell in June, following the resolution of the debt ceiling talks, and the pause in monetary tightening in the US. Bond yields rose slightly in June, while credit spreads slightly decreased during the month.
Over June, Hedged Developed Markets Overseas Shares returned 5.6%, US stocks outperformed emerging markets and other international developed markets. Value and growth stocks delivered similar results in June, although year to date growth has significantly outperformed value. Japan contributed significantly to the outperformance of developed markets, gaining 7.5% in June, as the Bank of Japan continues to stimulate the economy. Emerging Markets Shares (UH) gained 0.9%, held back by weakness in China. Latin America was the standout in emerging markets as the recovery in commodities provides a tailwind for its equities.
Hedged Overseas Government Bonds returned -2.3% over the month, as bond yields generally increased during June. In the US, the 10-year bond yield rose by 16bps. In developed markets outside the US, 10- year yields fell by 3bps in Japan, while yields rose 20bps in the UK, and 13bps in the Eurozone. US inflation expectations, as measured by the 10-year inflation breakeven rate, was unchanged and ended June at 2.2%.
Australian Shares returned 1.7%, underperforming their overseas counterparts in June. Materials (4.6%) and Financials (3.1%) were the strongest sectors, meanwhile Healthcare (-6.4%), and Communication Services (-1.0%) were the largest detractors.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/FP106-Advance-Cash-Multi-Blend-Fund-Jun-2023.pdfMay, 2023
In May, risk asset returns in developed markets were mostly negative, bonds and real assets also generally declined. Emerging market equities returns were marginally positive.
News flow during May focused predominantly on the debt ceiling deadline looming in early June. Overall, the market impact has been fairly limited, although ratings agencies have placed US credit on watch for potential downgrades. The challenges facing regional banks in the US continued to be a major topic in early-May with regulators brokering a deal for JP Morgan to purchase First Republic Bank.
However, the sell-off in shares of other vulnerable banks continued along with sizable deposit outflows.
Economic data in general remained resilient. US unemployment rose slightly in May but remains at historically low levels, although, other indicators such as wage growth show that the labour market is gradually cooling. Forward-looking purchasing manager indices remain in expansion territory across most major regions, with strength in services outweighing weakness in manufacturing. In spite of economic resilience, headline inflation continued to decline in most major economies with it falling to just under 5% in the US. Inflation in Japan rose to 3.5%, which is high by historical standards, but still lower than in other developed countries. In the UK and Eurozone, inflation remains more resilient, but also on a downward trajectory. Inflation in China remains low amid a slow and developing expected economic recovery.
Rate markets continue to grapple with the question of how long monetary policy will remain tight. The bond market is pricing in an initial rate cut toward the end of this year or early next year, but US Fed officials have generally cast doubt on that timeline. Credit spreads moved slightly higher during the month. Issuance is coming back after a slowdown earlier in the year when the first signs of distress emerged among US regional banks.
Over May, Hedged Developed Markets Overseas Shares returned - 0.2%, equity volatility increased moderately over the month, with one spike early in the month due to renewed banking concerns and another spike later in the month amid debt ceiling negotiations. Earnings season for Q1 2023 is coming to an end, with a second consecutive quarterly decline. Equities markets have seen through weaker earnings so far as attested by strong year to date returns for Overseas Shares.
Over the month, it was notable that growth outperformed value by a large margin, in spite of rising yields. A couple of contributors included optimism over developments in A.I. favouring growth stocks, while more cyclical sectors that dominate value indices lagged. Emerging Markets Shares (UH) gained 0.4%, as poor performance in China offset positive performance in other major emerging economies.
Hedged Overseas Government Bonds returned -0.6% over the month as bond yields generally increased during May. In the US, the 10-year bond yield rose by 22bps, while the 30-year yield was up by 18bps. In developed markets outside the US, 10-year yields rose by 8bps for Japan and 46bps for the UK, while falling 3bps for the Eurozone. US inflation expectations, as measured by the 10-year inflation breakeven rate, fell 3bps to 2.2%.
Australian Shares returned -2.5%, underperforming their overseas counterparts in May. IT (10.4%) and Utilities (1.1%) were the strongest sectors, meanwhile Consumer Discretionary (-6.2%), and Consumer Staples (-4.5%) were the largest detractors.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/FP106-Advance-Cash-Multi-Blend-Fund-May-2023.pdfApril, 2023
In April, risk asset returns in developed markets were mostly positive, while defensive assets also provided modest gains. Emerging market equities were lower than their developed market counterparts due to the weakness in Chinese stocks.
News flow during April was fairly quiet until the last week of the month when banking concerns resurfaced, as First Republic Bank came under pressure and was ultimately acquired by J.P. Morgan. Equity market volatility ended the month at its lowest level since late-2021, despite a brief spike during the last week of the month. Major economies remained resilient, driven largely by service activity. US GDP for Q1 2023 rose at a 1.1% annualised rate, which was below expectations. Consumer confidence remained on the rise and labour markets remained tight, in spite of high profile layoffs in the US.
Headline inflation continued to decline in major economies, reaching 5.0% in the US, its lowest level since mid-2021. In the UK, inflation fell by less than expected and remained above 10.0%, the highest rate in major developed economies. The People’s Bank of China and Reserve Bank of Australia left key lending rates unchanged.
Over April, Hedged Developed Markets Overseas Shares returned 1.6%. Even though the US earnings season delivered a fair number of positive EPS surprises relative to expectations, the earnings decline over the first quarter is set to be the largest since the second quarter of 2020. Returns were positive for most sectors with Consumer Staples delivering the largest gains for the month. Value outperformed growth among large- and mid-cap stocks, while growth outperformed among small-caps. Emerging Market Shares (UH) underperformed unhedged Overseas Shares in April.
Weakness in China outweighed the better performance from India and Brazil.
Hedged Overseas Government Bonds returned 0.2% over the month as bond yields generally saw modest changes for most countries during the month. In the US, the 10-year bond yield fell by 4bps, while the 30-year yield was flat. In developed markets outside the US, 10-year yields rose by 6bps for Japan and 23bps for the UK. US inflation expectations, as measured by the 10-year inflation breakeven rate, fell from 2.3% to 2.2%. Australian Government Bonds were flat over the month.
Lending conditions remain somewhat stressed due to banking concerns but bond markets have remained fairly calm. Credit spreads generally declined during the month, with investment-grade spreads falling 2bps and high yield spreads declining 3bps.
Australian Shares returned 1.8%, underperforming their overseas counterparts in April. Real Estate (5.2%) and IT (4.5%) were the strongest sectors, meanwhile Materials (-2.6%) and Utilities (1.4%) were the largest detractors.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/FP106-Advance-Cash-Multi-Blend-Fund-Apr-2023.pdfMarch, 2023
The Advance Cash Multi Blend Fund outperformed its benchmark by 4bps in March.
Both Pendal and Blackrock outperformed the benchmark over the month. Performance benefitted from the higher running yield than the benchmark, due to the longer dated tenors of some NCD holdings and also from the additional margin offered by non-prime bank issuers.
The portfolio remains conservatively positioned in terms of its credit spread duration and also in terms of its interest rate risk positioning. The portfolio remains highly liquid and is well positioned to take advantage of wider credit spreads at the right time.
It was another volatile month for financial markets in March. Despite central bank hikes the narrative was dominated by risk off moves driven by bank failures in the US and Europe.
In the United States, the Federal Reserve raised the Fed Funds rate by a further 0.25%, taking the upper target band level to 5%. Prior to the decision the market had priced in a 50 basis point move as more likely following comments from Fed Char Powell in the lead up to the meeting. Powell commented that recent economic data had come in stronger than expected and that the level of interest rates is likely to be higher than previously anticipated.
Bond yields rallied following the Federal Reserve’s decision to increase the Fed Funds rate due to their dovish commentary and lingering concerns about the state of some of the regional financial institutions. In their statement the Fed noted that ‘some additional policy firming may be appropriate’, watered down from their previous statement where they saw ‘ongoing increases in the target range will be appropriate’. Powell also commented that the credit contraction from regional banks ‘could easily have a significant macroeconomic effect’. Inflation data was in line with consensus with headline inflation up 0.4% in February resulting in an annual increase of 6%. Core inflation rose 0.5% for the month and 5.5% over the past year.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/Advance-Cash-Multi-Blend-Fund-factsheet-27.pdfFebruary, 2023
The Advance Cash Multi Blend Fund underperformed its benchmark by 1bps in February.
Performance benefitted from the higher running yield than the benchmark, due to the longer dated tenors of some NCD holdings and also from the additional margin offered by non-prime bank issuers. The credit spread duration of the portfolio however remains short across both mandates as our underlying managers continue to take a conservative stance.
Higher yields and steepness in the yield curve continues to provide opportunities, although the shorter part of the curve has become expensive. While further rate hikes are data dependent, our managers believe the RBA is very unlikely to get activity data weak enough for them to be confident enough to pause in the near term.
A combination of a hawkish shift by central banks and stronger-than-expected data in the US resulted in higher rates across the curve. This dampened risk sentiment in February.
In the United States, the Federal Reserve raised the Fed Funds rate by a further 25 basis points to 4.75%. In their accompanying statement the Committee stated that ongoing increases will be appropriate and that whilst inflation has eased somewhat it remained elevated. In the ensuing press conference Fed Chair Jay Powell noted that financial conditions had tightened ‘very significantly’ in the past year and that they are talking about a couple more rate hikes.
Economic data out of the US was generally stronger than expected, which saw the market reprice terminal cash rates higher as the expectation is that central banks will need to continue to hike rates to slow economies to bring inflation down. The unemployment rate fell from 3.6% to 3.4% and average hourly earnings rose 0.3% in January resulting in an annual increase of 4.4%. January inflation data was in line with consensus. Headline inflation rose 0.4% for the month and resulting in an annual increase of 6.4%, whilst core inflation was 0.4% and 5.6% for the same periods.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/Advance-Cash-Multi-Blend-Fund-factsheet-26.pdfJanuary, 2023
The Advance Cash Multi Blend Fund outperformed its benchmark by 5bps in January with both our underlying managers delivering a positive relative result over the month.
Performance benefitted from the higher running yield than the benchmark, due to the longer dated tenors of some NCD holdings and also from the additional margin offered by non-prime bank issuers. The credit spread duration of the portfolio however remains short across both mandates as our underlying managers continue to take a conservative stance.
Higher yields and steepness in the yield curve continues to provide opportunities, although the shorter part of the curve has become expensive. 6 month tenors remain attractive on a relative value basis allowing for further monetary policy tightening from the RBA. The market is latching on to any reference to a slower pace of hikes and in turn is benefitting risk sentiment.
January saw the Australian bond market recover most of the losses from the late December selloff. This was despite a higher-than-expected Q4 2022 inflation number released late in January. The rally was driven by growing signs in the US and other economies that inflation has peaked and central banks will be slowing the pace of hikes or even stopping them completely.
In the United States inflation data printed in line with market expectations. Headline inflation fell 0.1% in December, resulting in an annual increase of 6.5%. Core inflation rose 0.3% for the month and 5.7% over 2022. The fall in headline inflation was driven entirely by the fall in gasoline prices. Key Fed member Lael Brainard acknowledged that inflation data has declined in recent months and that the retail sales and industrial production data showed a slowing in economic growth. Forward looking indicators suggest growth will slow further in 2023 however policy will need to be sufficiently restrictive for some time in bringing inflation down.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/Advance-Cash-Multi-Blend-Fund-factsheet-25.pdfDecember, 2022
The portfolio performed in line with the benchmark in December. Our underlying managers delivered a positive result over the month.
Performance benefitted from the higher running yield than the benchmark, due to the longer dated tenors of some NCD holdings and also from the additional margin offered by non-prime bank issuers. The credit spread duration of the portfolio however remains short across both mandates as our underlying managers continue to take a conservative stance.
Higher yields and steepness in the yield curve continues to provide opportunities, although the shorter part of the curve has become expensive. 6 month tenors remain attractive on a relative value basis allowing for further monetary policy tightening from the RBA. The market is latching on to any reference to a slower pace of hikes and in turn is benefitting risk sentiment.
It was a busy month in December with central banks continuing to tighten monetary policy although there is clear evidence that inflationary pressures are easing across the developed world. News of the easing of China’s zero covid policy and corresponding China re-opening story was initially viewed positively for markets on the back of improved future global economic growth. However later in the month, concerns grew as it could lead to a spike in global covid cases. The Bank of Japan broadened the tolerance for its yield curve control target band on the 10yr JGB yield from 25bps to 50bps, and the move surprised the market driving yields higher globally.
In the United States, as expected, the Federal Open Market Committee (FOMC) raised the Fed Funds rates by 50bps to 4.25%-4.50%. Fed Chair Jerome Powell had indicated policymakers could moderate the pace of interest rate hikes and the smaller rate hike was widely anticipated. Strong data out of the US (average hourly earnings, ISM services and producer prices) at the start of the month saw risk markets weaken on the fear of higher inflation.
However, in the middle of the month, the market had the US CPI print which was the 2nd consecutive positive (lower) surprise on US inflation, which gave the market a lift. Consumer inflation fell back for the fifth consecutive month, and by more than expected. The Fed lowered its GDP forecast for 2023 and raised its inflation forecast, though the recent fall in inflation has provided investors with hope that the extent and pace of future rate hikes will become more muted.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/Advance-Cash-Multi-Blend-Fund-factsheet-24.pdfNovember, 2022
The portfolio outperformed its benchmark in November with our underlying managers delivering a positive result over the month.
Bank bill yields ended the month unchanged to slightly lower in yield. Performance benefitted from the higher running yield than the benchmark, due to the longer dated tenors of some NCD holdings and also from the additional margin offered by non-prime bank issuers. The credit spread duration of the portfolio remains short, as our underlying managers are conservatively positioned in terms of its credit spread duration and also in terms of its interest rate risk positioning. The portfolio remains highly liquid and is well positioned to take advantage of higher yields and wider credit spreads. Capital preservation and liquidity remain key concerns in the current environment.
Risk sentiment was buoyed over the month due to the weaker than expected inflation out of the United States and the Central Bank’s commentary for the potentially slowing pace of monetary policy tightening.
In the United States, the Federal Reserve (the Fed) increased the Fed Funds Rate by a further 0.75% at their meeting in early November. In their statement the Fed indicated that the increments for policy tightening may be less than 0.75% while they stated that they will “take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments”. Whilst the market rallied following the statement release, Fed Chair Powell’s press conference included a comment that “the question of when to moderate the pace of increases is now much less important that the question of how high to raise rates and how long to keep monetary policy restrictive” and that “the ultimate level of interest rates will be higher than previously expected.” Inflation data in the US came out weaker than expected. The headline rate rose by 0.4% in October (expectation was for 0.6%), taking the annual rate from 8.2% to 7.7%. Core inflation rose by 0.3% (expectation was for 0.5%) and resulted in the annual rate falling from 6.6% to 6.3%.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/Advance-Cash-Multi-Blend-Fund-factsheet-23.pdfOctober, 2022
The portfolio outperformed its benchmark in October with our underlying managers delivering a consistent positive result over the month.
Our underlying managers have been conservatively positioned in terms of its credit spread duration and also in terms of its interest rate risk positioning. The portfolio remains highly liquid and is well positioned to take advantage of higher yields and wider credit spreads. Capital preservation and liquidity remain key concerns in the current environment. Higher yields and steeper curves will provide opportunities to add returns. However, our managers will only meaningfully add risk only once relative stability is evident in the markets.
October was another volatile month for the financial markets and geopolitical risk remains as elevated as ever. Consumer sentiment continues to deteriorate while business confidence is firmer but showing signs of weakness. During the month, the tensions between Russia and Ukraine escalated as Russia retaliated to several attacks. The US announced to restrict exports of semiconductor chips to Chinese firms which inflamed tensions with Beijing. In the UK, a change in political leadership and shift in policies helped settle gilt markets and propel a market recovery as yields fell sharply.
In the United States, the inflation data continues to exceed expectations and led to the market pricing in up to a further 1.5% increase in the Fed Funds rate prior to the end of the year. Headline and Core inflation both exceeded expectations by 0.2% at 0.4% and 0.6% respectively, taking the annual rate to 8.2% and 6.6%. The strong labour and inflation data, and hawkish rhetoric from several Federal Open Market Committee (FOMC) members at the beginning of the month together pushed terminal policy rate expectations higher, with the market moving to price in 75 basis point hikes at the Federal Reserves (the Fed) meeting in November and December.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/Advance-Cash-Multi-Blend-Fund-factsheet-22.pdfSeptember, 2022
The Advance Cash Multi Blend Fund performed in line with the benchmark during the month of September. Our underlying managers delivered a positive result over the month.
Our underlying managers have been conservatively positioned in terms of their credit spread duration and in terms of their interest rate risk positioning. The portfolio remains highly liquid and is well positioned to take advantage of higher yields and wider credit spreads. Capital preservation and liquidity remain key concerns in the current environment. Higher yields and steeper curves will provide opportunities to add returns. However, our managers will only meaningfully add risk only once relative stability is evident in the markets.
September saw a continuation of the trend to higher yields in the fixed income market. Risk sentiment was beaten up during the month as yields surged globally with central banks continuing with aggressive monetary policy tightening. The UK Government kicked a massive own goal late in the month with its mini budget sending yields soaring. China continued with its strict Covid stance, sending a few cities into full lockdown during the month and tensions between Ukraine and Russia remain as elevated as ever.
In the United States, the Federal Reserve (Fed) increased rates by another 75bp. The annual inflation rate for August came in at 8.3%, down from July’s 8.5% but above market expectations of 8.1%. Core inflation, meanwhile, rose 0.6% for the month to 6.3% in August, the highest rate for five months. Recognising the third successive rate increase posed risks to growth, Fed Chairman Jerome Powell said rate hikes are “not as painful as failing to restore price stability.” Powell also warned that it would be some time before tighter policy would have any clear impact on inflation. He confirmed during the month that Federal Reserve is resolute in bringing down inflation. Powell continued to stress the need to act “forthrightly” to bring down inflation to the 2% goal and cautioned against prematurely loosening policy.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/Advance-Cash-Multi-Blend-Fund-factsheet-21.pdfAugust, 2022
The fund outperformed its benchmark in August with our underlying managers delivering a positive result over the month.
The portfolio returned 0.18% in August with the bank bill index returning a comparable 0.15% for the month. Credit spreads on major bank securities tightened over the month which helped the fund’s performance.
Our underlying managers have been conservatively positioned in terms of its credit spread duration and in terms of its interest rate risk positioning. The portfolio remains highly liquid and is well positioned to take advantage of higher yields and wider credit spreads. Capital preservation and liquidity remain key concerns in the current environment. Higher yields and steeper curves will provide opportunities to add returns. However, our managers will only meaningfully add risk only once relative stability is evident in the markets.
It was another busy month with bond markets resuming the trend of 2022 towards higher rates. The rally in equity and bond markets last month, and the subsequent easing of economic conditions, had clearly made central banks determined to ramp up the hawkish rhetoric. Consumer sentiment continues to deteriorate while business confidence is firmer but beginning to show signs of weakness.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/Advance-Cash-Multi-Blend-Fund-factsheet-20.pdfJuly, 2022
The Advance Cash Multi-Blend Fund outperformed the benchmark during the month of July.
The portfolio outperformed its benchmark in July with our underlying managers delivering a positive result over the month.
The portfolio returned 0.13% in July with the bank bill index returning a comparable 0.12% for the month.
Our underlying managers have been conservatively positioned in terms of its credit spread duration and interest rate risk positioning. The portfolio remains highly liquid and is well positioned to take advantage of higher yields and wider credit spreads. Capital preservation and liquidity remain key concerns in the current environment. Higher yields and steeper curves will provide opportunities to add returns. However, our managers will only meaningfully add risk only once relative stability is evident in the markets.
It was another busy month with Central banks continuing to tighten monetary policy aggressively in July and inflation data continuing to surpass expectations. Increasing concerns about slowing economic growth as well as the recession risk saw bond yields fall in most developed markets late in the month. Recent themes weighing on risk sentiment continue to linger with the conflict in Ukraine showing no signs of abating, China continuing with its strict Covid policy and commodity prices overall remaining elevated.
In the United States, inflation continues to rise in the US and exceeded expectations again in June. Headline inflation rose 1.3% in the month taking the annual increase to 9.1% and core inflation rose 0.7% seeing annual core inflation rise 5.9% for the year. The Federal Reserve raised the Fed Funds rate by 0.75% to 2.5%. In the accompanying statement the Fed acknowledged that ‘recent indicators of spending and production have softened’, replacing the comment that activity had been picking up. In the press conference Fed Chair Powell stated that he sees the current policy level as around neutral and wants to get to a moderately restrictive stance.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/Advance-Cash-Multi-Blend-Fund-factsheet-19.pdfJune, 2022
The Advance Cash Multi-Blend Fund outperformed the benchmark during the month of June. The portfolio delivered returns that were slightly above the benchmark in June with our underlying managers both outperforming. The portfolio returned 0.06% in June with the bank bill index returning a comparable 0.05% for the month. Outperformance was achieved despite another large sell off in the bank bill curve, with 6-month Bank Bill Swap Rate (BBSW) rising by 74 basis points to 2.67%. Credit spreads also widened during the month. Our underlying managers have been conservatively positioned in terms of its credit spread duration and in terms of its interest rate risk positioning. The portfolio remains highly liquid and is well positioned to take advantage of higher yields and wider credit spreads. Capital preservation and liquidity remain key concerns in the current environment. Higher yields and steeper curves will provide opportunities to add returns. However, our managers will only meaningfully add risk only once relative stability is evident in the markets.
It was another volatile month with aggressive central bank actions and rhetoric driving bond yields higher over the month before stabilising towards month end. Global data began to show hints of weakness and central bank speakers acknowledged the risk of delivering not a ‘soft’ but ‘hard landing,’ with the possibility of recession from policy over-tightening. Signs of China’s reopening and easing of restrictions provided some support to the global backdrop, but this positive sentiment was offset by weak activity and consumption data amid ongoing supply chain issues, with the Russia-Ukraine conflict disrupting key energy and food supply chains.
In the United States, inflation in May exceeded expectations again with headline inflation rising 1% in the month and 8.6% over the past year (consensus was 0.7% and 8.3%). Core inflation rose by 0.6% and 6%, marginally above expectations. In response, the Federal Reserve (the Fed) raised the Fed funds rate by 0.75% to 1.75%. The market did however take comfort from comments from Fed Chair Jerome Powell when he stated that he doesn’t expect 75 basis point moves to be common and sees either 50 or 75 basis points as being the most likely at the next Fed meeting.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/Advance-Cash-Multi-Blend-Fund-factsheet-18.pdfMay, 2022
The Advance Cash Multi-Blend Fund outperformed the benchmark during the month of May. The portfolio delivered returns that were slightly above the benchmark in May with both our underlying managers outperforming. The portfolio returned 0.04% in May with the bank bill index returning a comparable 0.03% for the month. Outperformance was achieved despite another large sell off in the bank bill curve, with 6-month Bank Bill Swap Rate (BBSW) rising by 48 basis points to 1.93%. Credit spreads also widened during the month. Our underlying managers have been conservatively positioned in terms of credit spread duration, and in terms of interest rate risk positioning. The portfolio remains highly liquid and well positioned to take advantage of higher yields and wider credit spreads. Capital preservation and liquidity remain key concerns in the current environment. Higher yields and steeper curves will provide opportunities to add to returns. However, our managers will only meaningfully add risk only once relative stability is evident in the markets.
The mixed earnings data that came out of the United States, along with a continuation of recent developments, weighed on risk sentiment. The landscape of rising interest rates along with inflation, and the corresponding impact on consumer sentiment have caused growth forecasts around the world to lower. Commodity prices surged with natural gas up 12% after Russia implemented sanctions against European energy companies. Positive signs are, however, emerging due to an improvement in the COVID situation in China, and the potential that the U.S. Federal Reserve (Fed) may not raise rates as aggressively as feared, which helped to underpin markets.
In the United States, the Fed raised the interest rate by 50 bps to 1%, the first increase greater than 25 bps since May 2020. In the press conference that followed, Fed Chair Powell highlighted that inflation is “much too high”, with annual inflation peaking at 8.6% in May, the highest since 1981. Chair Powell stated that “75 bps is not something the FOMC is actively considering” and talked about a potentially softish landing. This in turn saw bonds and equity markets rally. However, he did note that 50 bps hikes are possible at the next two meetings.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/Advance-Cash-Multi-Blend-Fund-factsheet-17.pdfApril, 2022
The Advance Cash Multi-blend Fund delivered returns that were in line with the benchmark during the month of April. Our underlying managers delivering a neutral result over the month.
The 6-month Bank Bill Swap Rate (BBSW) rose by 0.75% in April - this is the largest monthly rise in yields since 1994. Credit spreads also widened during the month. The portfolio has been conservatively positioned in terms of its credit spread duration, and in terms of its interest rate risk positioning. This conservative positioning meant that the portfolio, in a period of extreme moves in yields, and to a lesser extent credit spreads performed closely in line with the benchmark for the month. The portfolio remains highly liquid and is well positioned to take advantage of higher yields and wider credit spreads at the right time.
The lockdowns in China, the conflict in Ukraine, and the prospect of substantially tighter US monetary policy all weighed on sentiment and commodity prices. Risk sentiment was affected as the latest threat to global economic growth emerged in the form of lockdowns and zero Covid policy in China. The war in Ukraine still had no sign of resolution in April and the impact on energy market was particularly notable in Europe given the difficulties in reducing its energy dependency on Russia.
In the United States, the Federal Reserve (the Fed) was preparing for a string of 50 basis point rate increases, starting from their meeting in early May. Fed Chair Powell noted that there was merit in front loading monetary policy and stated that a 50 basis points move was on the table in May, effectively endorsing what the market had priced in. Bond markets reacted sharply to Powell’s more hawkish tone. The US 10-year bond yield ended the month 60 basis points higher at 2.94%. The US 2-year bond yields also ended the month 38 basis points higher at 2.72%.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/Advance-Cash-Multi-Blend-Fund-factsheet-16.pdfMarch, 2022
The portfolio remained flat over the month of March, in line with the benchmark. Both Pendal and Blackrock contributed to the portfolio’s performance.
The excess yield from non-major bank money market securities and the margin from Floating Rate Notes (FRN’s) has resulted in the portfolio yielding a higher rate than the index. The portfolio is well-positioned to take advantage of higher yields and steeper curves whilst firmly focused on maintaining high levels of liquidity and ensuring capital is preserved. The spread duration of the portfolio remains at just 0.2 years, reflecting the cautious outlook for credit spreads over the near to medium term.
It was another volatile month in financial markets with commodity prices surging during the month leading to increased inflationary concerns. Bond yields sold off aggressively against this backdrop although risk markets held in surprisingly well over the course of the month. Oil peaked at $140 on headlines that the US and UK banned Russian oil imports. The EU also discussed a plan to issue a significant amount of joint debt to facilitate a fast-tracking of green energy and renewables, defense spending, and subsidies to assist households with soaring utility prices.
In the United States, the Federal Reserve lifted the Fed Funds rate by 0.25% to 0.50% at its March meeting. The median forecast for 2022 was 1.75% of rate hikes this year, up from 0.75% in December 2021. The median core Personal Consumption Expenditures price index (PCE) inflation forecast for 2022 rose by 1.4% to 4.1%. Powell noted that the labor market is extremely tight and warned that if inflationary pressures remain elevated, he was prepared to be more aggressive by raising rates by 50 basis points at a meeting or meeting. Powell further noted that there’s already a lot of upward inflation pressure and additional pressure probably does raise the risk that inflation expectations will start to react in a way that is negative for the global economy.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/Advance-Cash-Multi-Blend-Fund-factsheet-15.pdfFebruary, 2022
The portfolio remained flat during the month, marginally underperforming the benchmark during February. Both Pendal and Blackrock contributed to the portfolio’s performance.
The short end of the yield curve steepened further. It is likely that yield curve strategies rather than the excess margin from longer-dated debt will be the key driver for outperformance in the nearer term. Floating Rate Notes (FRNs) were sold down early in the month.
The reasons were twofold: > The credit environment is likely to deteriorate in the near term and, > The rise in short-end yields means it is more appealing to hold six-month Negotiable Certificate of Deposits (NCDs), rather than FRN’s referencing three-month Bank Bill Swap Rates (BBSW) that still sub 0.10%. The commercial paper also continues to offer attractive margins over bank bills of around 0.20% to 0.30% and our underlying managers have continued to roll over selected maturities in this sector.
Altogether, the excess yield from non-major bank money market securities and the margin from FRNs have resulted in the portfolio yielding a higher rate than the index. It was a volatile month for markets in February with inflationary concerns seeing yields move higher for most of the month before geopolitical events saw risk aversion increase.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/Advance-Cash-Multi-Blend-Fund-factsheet-14.pdfJanuary, 2022
The Advance Cash Multi Blend Fund underperformed the benchmark during January. Portfolio positioning remains consistent with prior months. The excess yield from non-major bank money market securities and the margin from Floating Rate
Notes (FRN’s) has resulted in the portfolio yielding a higher rate than the index. The portfolio remains conservatively positioned relative to its benchmark. The term funding facility expired at the end of June and will eventually result in financial institutions issuing debt rather than tapping funding at 0.10%. This is a welcome development. Offsetting that is ongoing quantitative easing that sees banks remaining flush with cash, which in turn resulting in ongoing margin contraction.
The portfolio remains highly liquid and, with a higher running yield than the benchmark, is reasonably well positioned to outperform in the near term. Ongoing inflation concerns and the spectre of more imminent and aggressive monetary policy tightening saw bond yields globally move higher over the month and led to increased volatility in equity markets. Tensions between Russia and Ukraine also weighed on sentiment. With no Reserve Bank Australia (RBA) meeting held in January, the main focus domestically for the month was the release of the quarterly inflation numbers. Core trimmed mean and weighted median inflation all exceeded expectations by a considerable margin. The trimmed mean rose by 1% in the 4th quarter,producing annual trimmed mean inflation of 2.6%. The weighted median rose by 0.9% over the quarter, to see weighted median inflation at 2.7% over 2021.
With the numbers now above the midpoint of the RBA’s 2-3% target band and the move to more imminent policy tightening offshore, the market understandably brought forward the timing for when the RBA can be expected to raise the cash rate.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/Advance-Cash-Multi-Blend-Fund-factsheet-13.pdfDecember, 2021
The Advance Cash Multi Blend Fund outperformed the benchmark during December. Both Pendal and Blackrock contributed to the portfolio’s outperformance. Portfolio positioning remains consistent with prior months. The excess yield from non-major bank money market securities and the margin from Floating Rate Notes (FRN’s) has resulted in the portfolio yielding a higher rate than the index. The portfolio remains conservatively positioned relative to its benchmark. The Term Funding Facility expired at the end of June and will eventually result in financial institutions issuing debt rather than tapping funding at 0.10%. This is a welcome development. Offsetting that is ongoing quantitative easing that sees banks remaining flush with cash, which in turn resulting in ongoing margin contraction.The portfolio remains highly liquid and with a higher running yield than the benchmark is reasonably well positioned to outperform in the near term.Risk markets performed strongly, and central banks continued their more hawkish tilt during the month despite the emergence of the omicron variant.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/Advance-Cash-Multi-Blend-Fund-factsheet-12.pdfNovember, 2021
The Advance Cash Multi Blend Fund performed in line with the benchmark during November. Both Pendal and Blackrock contributed to portfolio outperformance. Portfolio positioning remains consistent with prior months. The excess yield from non-major bank money market securities and the margin from Floating Rate Notes (FRN’s) has resulted in the portfolio yielding a higher rate than the index. The portfolio remains conservatively positioned relative to its benchmark. The Term Funding Facility expired at the end of June and will eventually result in financial institutions issuing debt rather than tapping funding at 0.10%. This is a welcome development. Offsetting this is ongoing quantitative easing that sees banks remaining flush with cash, which in turn resulting in ongoing margin contraction.
The portfolio remains highly liquid and with a higher running yield than the benchmark is reasonably well positioned to outperform in the near term. Market moves in offshore bonds were mixed during the month and risk sentiment late in the month waned due to the emergence of the Omicron COVID strain. Inflation continued to be a hotly debated topic in November after US inflation surged in the month prior. Domestically, the RBA abandoned Yield Curve Control in its November meeting but reiterated the very slow path to tightening. Markets have priced in a full hike in by mid-2022 and almost three by the end of 2022. However, Governor Lowe still thinks 2024 is most likely for ‘lift off’ but concedes 2023 is now a chance. This difference in views is due to the market extrapolating Fed policy outlooks onto Australia, thinking the RBA will simply follow the Fed. Again, the RBA says they are happy to ignore the Fed, as they did during the entire Fed hiking cycle in 2017/18.
Notwithstanding the longer-term views, Australian bond yields all traded lower. Three- and ten-year Australian government bonds were 0.24% and 0.30% lower over the month, reflecting caution over the Omicron strain that may potentially derail the path of economic recovery.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/Advance-Cash-Multi-Blend-Fund-factsheet-11.pdfOctober, 2021
The Advance Cash Multi Blend Fund delivered in line performance relatively to the benchmark during the month of October. Portfolio performance was broadly neutral with Blackrock and Pendal both delivering returns that were in line with the benchmark. Portfolio positioning remains consistent with prior months. The excess yield from non-major bank money market securities and the margin from Floating Rate Notes (FRN’s) resulted in the portfolio yielding a higher rate than the index. The portfolio remains conservatively positioned relative to its benchmark. The term funding facility expired at the end of June and will eventually result in financial institutions issuing debt rather than tapping funding at 0.10%. This is a welcome development. Offsetting that is ongoing quantitative easing that sees banks remaining flush with cash, which in turn resulting in ongoing margin contraction. The portfolio remains highly liquid and with a higher running yield than the benchmark is reasonably well positioned to outperform in the near term. October was a volatile month for bond markets globally, as central banks accelerated moves to unwind extraordinary monetary policy, and in some cases raising cash rates.
Closer to home, the RBA left the cash rate unchanged at their November meeting. However, their statement included updated economic forecasts including 2023 forecasts for inflation of 2.5%, the unemployment rate at 4% and wage inflation at 3%. Accompanying this statement was the RBA’s decision to abandon any further purchasing of the April 2024 Government bond under their yield curve control program. The decision to discontinue the yield target reflects the improvement in the economy and the earlier than expected progress towards the inflation target.
The Reserve Bank of Australia however reiterated that they will not rush any rate hikes, given the belief that some of the inflation may be due to temporary market distortions. The spike in inflation, in combination with the strong domestic jobs market and rapidly opening economy, exacerbated fears further, with money markets now pricing in several interest rate hikes next year. This, predictably, led to further speculation around Australia’s rapidly rising home prices and the potential impacts of a less dovish Reserve Bank of Australia. Markets have now priced price in rate rises to 1% by the end of 2022.
In other data releases, retail sales bounced in September with further recovery being likely as reopening continues. Business conditions purchasing managers’ indexes rose in October, as did payroll employment numbers, after falling for several months due to lockdowns. It was also revealed that despite a recent fall in iron ore exports and prices, Australia’s trade surplus rose to a record A$15.1 billion in August, as coal and liquefied natural gas exports surged, with rising prices for both commodities. Bond markets were thinly traded which exaggerated the moves across the curve. 10-year Australian bonds finished the month at 2.0%, or 0.5% higher. 3-year Australian bonds finished at 1.17%, or 0.9% higher on the month.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/Advance-Cash-Multi-Blend-Fund-factsheet-10.pdfSeptember, 2021
The Advance Cash Multi Blend Fund return remained flat over the month of September, in line with the Bloomberg Ausbond Bank Bill Index. Blackrock and Pendal both adding to the portfolio returns.
Portfolio positioning remains consistent with prior months. The excess yield from non-major bank money market securities and the margin from Floating Rate Notes (FRN’s) has resulted in the portfolio yielding a higher rate than the index. The portfolio remains conservatively positioned relative to its benchmark. The term funding facility expired at the end of June and will eventually result in financial institutions issuing debt rather than tapping funding at 0.10%. This is a welcome development. Offsetting that is ongoing quantitative easing that sees banks remaining flush with cash, which in turn resulting in ongoing margin contraction.
The portfolio remains highly liquid and with a higher running yield than the benchmark is reasonably well positioned to outperform in the near term. Risk markets started the month strongly with the MSCI World Index reaching new highs before risk sentiment waned on a myriad of concerns. Credit concerns, global supply chain issues, power and fuel shortages and more hawkish central banks all contributed to weigh on risk sentiment over the month. Offshore in the US, the Fed was seen as more hawkish at their September meeting. The dot plot revealed that 9 of the 18 participants now see the first rate hike occurring in 2022 and the median forecast is for the Fed Funds rate to be at 1% by the end of 2023 (i.e. 3.5 rate hikes from current settings). On the tapering front, the Fed noted that “a moderation in asset purchases may soon be warranted”.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/Advance-Cash-Multi-Blend-Fund-factsheet-9.pdfAugust, 2021
The Advance Cash Multi Blend Fund performance was flat over the month in line with the benchmark.
Portfolio positioning remains consistent with prior months. The excess yield from non-major bank money market securities and the margin from Floating Rate Notes (FRN’s) has resulted in the portfolio yielding a higher rate than the index. The portfolio remains conservatively positioned relative to its benchmark. The term funding facility expired at the end of June and will eventually result in financial institutions issuing debt rather than tapping funding at 0.10%. This is a welcome development. Offsetting this is ongoing quantitative easing that sees banks remaining flush with cash, which in turn resulting in ongoing margin contraction.
The portfolio remains highly liquid, and with a higher running yield than the benchmark is well positioned to outperform in the near term. Progressive steps in US fiscal legislation helped equities glide higher in the first half of August. The main contributor to sentiment was the Lower House endorsement of the Senate’s $3.5 trillion reconciliation bill. While not a cheque for added spending, the signature does enable Upper House Democrats to approve prospective fiscal measures without a Republican vote, removing the threat of a filibuster. The resolution followed passage of a separate $1.2 trillion infrastructure package into the advanced stages, which sparked a broad-based upgrade to earnings.
Despite this, talk of a hastened tapering process drove investors to the sidelines. With Fed Chair Powell tight-lipped on the subject, expectation grew for a tapering of Fed asset purchases, potentially to be announced over the Jackson Hole conference. These concerns were allayed late in the month as Powell dismissed talk that he would fast-track the normalisation process, emphasising that a reduction to the Fed’s bond program should not be interpreted as a green light for rate hikes.# Domestically, Australia’s path to normalisation continues to face headwinds due to the effects of the pandemic that will see Q3 economic growth contract. The labour market has shown better than expected strength prior to lockdowns, however this is yet to be reflected in wage inflation outcomes which rose by a less than expected 0.4% in the 2nd quarter and resulted in annual wage inflation of only 1.7%. For the RBA to achieve inflation sustainably within 2-3%, it will require much larger wage inflation outcomes than this figu
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/Advance-Cash-Multi-Blend-Fund-factsheet-8.pdfJuly, 2021
The Advance Cash Multi Blend Fund marginally outperformed the benchmark during the month of July. Portfolio positioning remains consistent with prior months. The excess yield from non-major bank money market securities and the margin from FRN’s has resulted in the portfolio yielding a higher rate than the index. The portfolio remains conservatively positioned relative to its benchmark. The Term Funding Facility expired at the end of June and will eventually result in financial institutions issuing debt rather than tapping funding at 0.10%. This is a welcome development. Offsetting this: ongoing quantitative easing that sees banks remaining flush with cash, which in turn results in ongoing margin contraction.
The portfolio remains highly liquid and, with a higher running yield than the benchmark, is well positioned to outperform in the near term. Economic data took a back seat to rising concerns over the Delta variant of the coronavirus in July.
Domestically this resulted in lockdowns being imposed that now make it likely that the domestic economy will now contract in the third quarter of the year. Risk sentiment was also negative - affected by a series of events out of China. Long-end bond yields rallied with the Australian 10-year bond trading in a 35 bps range, ending the month at 1.18%. Prior to the above, the improving state of the Australian economy had seen the Reserve Bank of Australia (RBA) announce that it would begin tapering their bond purchases at the end of their current program in September, from $5bn per week to $4bn per week, until at least mid-November. The wording in the statement also contained a tweak that opened the possibility that a rate hike could occur before 2024. The market interpreted the change as more hawkish and saw the bank bill futures sold off by up to 10bps
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/Advance-Cash-Multi-Blend-Fund-factsheet-7.pdfMay, 2021
The Advance Cash Multi Blend Fund outperformed the benchmark during the month of May with Blackrock and Pendal both adding to the portfolio’s excess returns.
The excess yield from non-major bank money market securities and the margin from Floating Rate Notes (FRN’s) has resulted in the portfolio yielding a higher rate than the index. The portfolio remains conservatively positioned relative to its benchmark. The rise in 6-month BBSW (to 10bps from 2bps) will assist performance going forward. Offsetting this is the margin contraction due to financial institutions being flush with cash. The portfolio remains highly liquid and with a higher running yield than the benchmark is well positioned to outperform in the near term. May saw the Reserve Bank of Australia (RBA) provide updated forecasts in their statement on monetary policy. Economic growth was revised higher from 3.5% to 4.75% for 2021, with 2022 unchanged at a healthy 3.5%. Reflecting the better-than-expected growth, the unemployment rate was revised to 5% from 6% by the end of 2021 and is now forecast to be at 4.5% by the end of 2022. Despite these stronger forecasts trimmed mean inflation was only revised up slightly - only 2% by mid-2023. The RBA indicated it will not increase the cash rate until actual inflation is sustainably within their 2-3% target range, meaning the cash rate will not move for at least 2 years.
Business confidence reached an all-time high and business conditions improved even further from the record high set in the preceding month. Forwardlooking indicators suggest conditions will remain strong in the coming months with both forward orders and capacity utilisation showing a growing pipeline of work. The Federal Budget was also released during the month, and in line with the improved outlook for economic growth reflected budget deficits that were lower than those forecast at the end of 2020. The budget deficit for 2020/21 is now forecast to be $161bn, down from their December forecast of $197.7bn. The deficits are expected to decline in the coming years, with a deficit of $57bn forecast for 2024/25 and resulting in net debt of 40.9% of GDP.
Australian bond yields ended the month slightly lower in Australia with 10-year physical bonds rallying by 3bps to 1.66%. The RBA’s yield curve control and large amounts of cash in the system also saw short end yields also rally by 4bps, with the 3-year bond now below the yield curve target.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/Advance-Cash-Multi-Blend-Fund-factsheet-6.pdfMarch, 2021
The Federal Reserve (Fed) left its policy settings unchanged at it’s March meeting. The summary of economic projections reflected a more positive outlook on the state of the US economy, with economic growth forecast now to increase by 6.5% (from 4.2% previously) in 2021. The unemployment rate is now forecast to be 4.5% (from 5%) and core PCE inflation is expected to rise 2.2% in 2021 (previously 1.8%). The longer-term inflation forecast remains benign with rises of 2% and 2.1% forecast for 2022 and 2023.
In the following press conference Fed Chair Powell reiterated that the criteria for raising rates includes maximum employment, 2% inflation along with an expected inflationary trajectory to exceed 2% for some time. Transitory factors that see an increase in the inflation rate will be looked through. Late in the month the Fed also announced that the Supplementary Leverage Ratio exemption would expire at the end of March, putting upward pressure on US treasury yields.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/Advance-Cash-Multi-Blend-Fund-factsheet-5.pdfFebruary, 2021
The Advance Cash Multi Blend Fund outperformed the benchmark during the month of February with both Blackrock and Pendal adding to the portfolio’s excess returns. Credit themes remain consistent with developments in recent months. The support provided by central banks and Federal governments is outweighing the negative effects from the economic headwinds that most companies are facing. The TFF, which provides three year funding at 0.1% to banks for up to 3% of their outstanding credit and the significant cash balances that major banks are sitting on means that BBSW rates are likely to remain below cash and credit spreads supported due to a lack of primary market issuance.
The portfolio remains conservatively positioned relative to its benchmark and is well positioned to outperform. The level of out performance is however likely to decline given the flat shape of the yield curve and given the broader margin compression. Bond yields rose aggressively in February as inflation fears from fiscal stimulus and a paring back of monetary policy expectations weighed on the market. In the US, Fed officials did not weigh against the move higher, seeing the rise in bond yields as a signal of growing optimism in the economic recovery.
The Reserve Bank of Australia (RBA) also surprised the market at its February meeting when announcing that Quantitative Easing (QE) would be extended once the initial $100bn program has been used up by mid April. The RBA will buy a further $100bn at a rate of $5bn per week, taking QE through until early September. The RBA also released their Statement on Monetary Policy (SoMP), with underlying inflation not forecast to reach the bottom end of their target band over the forecast horizon. The RBA left the cash rate unchanged at its meeting in early March and reiterated that they will not raise the cash rate until actual inflation is sustainably within the 2 to 3% target band. The RBA does not expect this to occur until 2024 at the earliest. In light of the above, Australian 10 year bond yields traded in an 82 basis points (bps) range, selling off aggressively late in the month on inflation concerns globally and position liquidation. Australian 10 year bonds ended the month 76bps higher at 1.87%. 3 month implied rates for 2024 and 2025 peaked at 1.36% and 2.04% (from 0.66% and 1.02% in January), implying a cash rate that is closer to 1% and 1.75%. US 10 year bonds traded in a 48bps range, ending the month 33bps higher at 1.40%. Credit spreads performed well in February. Risk markets continued to rally on positive sentiment on Covid-19 vaccine roll outs, fall in new global cases and hospitalisations, expectation of an increased size of US stimulus, and central banks remaining determined not to suggest any tightening of monetary policy in the near term. However, bond markets felt the pinch with yields increasing during the month on positive growth and inflation outlooks, as well as commodity prices rising. This saw some weakness in equity markets and credit spreads late in the month due to the pace of the increase in yields driving market uncertainty
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/Advance-Cash-Multi-Blend-Fund-factsheet-4.pdfJanuary, 2021
The Advance Cash Multi Blend Fund was flat against the benchmark over January. Credit themes remain consistent with developments in recent months. The support provided by central banks and Federal governments is outweighing the negative effects from the economic headwinds that most companies are facing. The TFF, which provides three-year funding at 0.1% to banks for up to 3% of their outstanding credit and the significant cash balances that major banks are sitting on means that BBSW rates are likely to remain below cash and credit spreads supported due to a lack of primary market issuance. The portfolio remains conservatively positioned relative to its benchmark and is well positioned to outperform. The level of outperformance is however likely to decline given the flat shape of the yield curve and given the broader margin compression.
There was no Reserve Bank meeting in January with the main economic data being 4th quarter inflation released late in the month. Headline inflation rose by 0.9% for the quarter, which resulted in annual increase also of 0.9%. The Reserve Bank of Australia (RBA) last November stated that it would not be increasing
the cash rate until progress is being made towards full employment and actual inflation will be sustainably within the 2-3% target band. The RBA however did meet in February and left the cash rate unchanged. The contents of the statement were more dovish than what some in the market were expecting, announcing that they would be purchasing an additional $100bn when the current program is completed in mid-April. Offshore, the Federal Reserve (Fed) met late in the month and left their monetary policy settings unchanged with asset purchases of $80bn Treasury Bonds and $40bn Mortgage Backed Securities per month seen as remaining appropriate. Comments from the Fed Chair Powell did weigh on risk sentiment when he noted that the US economy is a long way from a full recovery, that the real unemployment rate is closer to 10% and on inflation that the Fed ‘will be patient and not react if we see small, transient inflation increases.
Ten-year bond yields in the US traded in a 27 basis point range, reaching their low of 0.90% early in the month before selling off following the US election result. Concerns over the timing and ability of US President Biden to execute his stimulus package saw bond yields rally into month end. US equity market jitters late in the month did not however result in a flight to safety. Australian yields mirrored the moves in the US, with 10-year bond yields ending the month 13 basis points higher in yield at 1.11%.
Credit market performance was mixed in January. The Australian iTraxx index (a proxy for the Australian credit markets) traded in a 8bp range finishing the month 7bps wider to +63bps.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/Advance-Cash-Multi-Blend-Fund-factsheet-3.pdfDecember, 2020
The Advance Cash Multi Blend Fund slightly outperformed the benchmark during the month of December. Portfolio performance was positive with Blackrock and Pendal both adding to the portfolio’s performance.
Credit themes remain consistent with developments in recent months. The support provided by central banks and Federal governments is outweighing the negative effects from the economic headwinds that most companies are facing. The TFF, which provides three year funding at 0.1% to banks for up to 3% of their outstanding credit and the significant cash balances that major banks are sitting on means that BBSW rates are likely to remain below cash and credit spreads supported due to a lack of primary market issuance.
The portfolio remains conservatively positioned relative to its benchmark and is well positioned to outperform. The level of outperformance is however likely to decline given the flat shape of the yield curve and given the broader margin compression.
The Reserve Bank of Australia (RBA) left monetary policy unchanged at its December meeting. In its accompanying statement the RBA noted that the economic recovery in Australia is underway and that recent data had generally been better than expected. Employment and inflation remain the key focus, with the RBA not looking to increase the cash rate until actual inflation is sustainably within the 2-3% target range. For this to occur the RBA sees significant employment growth and a tight labour market being required. The RBA is not expecting to raise the cash rate for at least 3 years. Elsewhere, S&P downgraded New South Wales’ credit rating by one notch to AA+ from AAA. Victoria had their rating downgraded by 2 notches from AAA to AA. The downgrades were not unexpected, although the 2 notches for Victoria was a surprise. Treasury Corporation of Victoria (TVC) spreads widened by a modest 6 basis points (bps) to Government bonds, highlighting the cushioning impact of the RBA’s Quantitative Easing (QE) and bank balance sheet buying. Offshore, along with the ongoing COVID-19 and vaccines news, fiscal stimulus packages in the United States and ongoing Brexit discussions dominated offshore headlines during the month.
Bond yields had small rises, with US 10 year bond moving from 0.84% to 0.91%. Australian 10 year bond yields ended also marginally higher on the month finishing at 0.98%
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/Advance-Cash-Multi-Blend-Fund-factsheet-2.pdfOctober, 2020
The Advance Cash Multi Blend Fund outperformed the benchmark during the month of October. Both Blackrock and Pendal added to the portfolio’s excess returns. Credit themes remain consistent with developments in recent months.
The support provided by central banks and Federal governments is outweighing the negative effects from the economic headwinds that most companies are facing. The TFF, which provides three year funding at 0.25% to banks for up to 3% of their outstanding credit and the significant cash balances that major banks are sitting on means that BBSW rates are likely to remain below cash and credit spreads supported due to a lack of primary market issuance. The Reserve Bank of Australia (RBA) left the cash rate unchanged at their meeting in early October. although further monetary policy easing may be imminent given the board is considering how additional monetary easing could further support jobs as the economy opens up. A speech on the 15th October by Governor Lowe gave investors some additional insight into the RBA’s thinking.
The RBA will now be putting a greater weight on actual, not forecast, inflation in their decision-making. In terms of unemployment the RBA wants to see more than just progress towards full employment. Lowe also stated that the RBA would not be increasing the cash rate until actual inflation is sustainably within the target range (2-3%) and that they do not expect to be increasing the cash rate for at least three years. This implies the front end of the curve is likely to remain anchored for some time. Governor Lowe also referenced the additional yield that Australia’s 10 year Government bonds trade at relative to other Western countries and whether there would be a benefit in the RBA buying bonds to reduce the yield on those bonds as they try and support Australian jobs. This has paved the way for Quantitative Easing (QE) at the RBA’s meeting in early November. Offshore events were dominated by the upcoming US election and the lack of progress on a fiscal stimulus package.
Also weighing on risk markets were increasing COVID-19 cases and resultant lockdowns in Europe, Brexit negotiations, US earnings and the trials and tribulations as companies race to find a vaccine Australian yields ended marginally lower on the month as US yields drifted higher and markets became largely priced for the potential RBA moves in November. US treasury yields sold off late in the month despite the sharp fall in US equity markets with the 10 year bond yield ending 19 basis points (bps) higher at 0.87%. However German 10 year yields fell 11bps to -0.63%
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/Advance-Cash-Multi-Blend-Fund-factsheet-1.pdfAugust, 2020
The Advance Cash Multi-Blend Fund outperformed the benchmark during the month of August with Blackrock and Pendal both adding to the portfolio’s excess returns.
Credit themes remain consistent with developments in recent months. The support provided by central banks and Federal governments is outweighing the negative effects from the economic headwinds that most companies are facing.
The term funding facility, which provides three year funding at 0.25% to banks for up to 3% of their outstanding credit, and the significant cash balances that major banks are sitting on means that BBSW rates are likely to remain below cash and credit spreads due to a lack of primary market issuance.
Bond yields moved higher over the month as positive risk sentiment saw equity markets perform well. In the United States the Federal Reserve (the Fed) announced that it would move to a 2% average inflation targeting regime. In addition, the Fed announced that they will only respond to shortfalls of employment, rather than a deviation above or below the maximum level. Essentially the Fed are prepared to see the labour market run hot without any change to monetary policy unless inflation is above their 2% target for a period of time. Details on how long the Fed would be prepared to see inflation above 2% before they would respond were light, disappointing the market. Australian bond yields drifted higher in August, but remain largely range bound. Ten year yields sold off 17 basis points (bps) on the month, from 0.85% to 1.02%. Three year yields remain supported by Yield Curve Control and remained unchanged at 0.29% for the generic bond. A new $21 billion 11 year bond from the Australian Office of Financial Management (AOFM) weighed on markets into month end.
The Reserve Bank of Australia (RBA) also began small levels of purchases in August, the first since May. This was driven by a small drift higher in three year yields above their 0.25% target. Also, large scale of Australian Government issuance drained money from the bank’s Excess Reserves, which gets topped up when the RBA conducts Quantitative Easing (QE). The RBA now holds $60 billion of bonds, an increase of $10 billion on the month.
File: https://commentary.quantreports.net/wp-content/uploads/2020/10/Advance-Cash-Multi-Blend-Fund-factsheet.pdfticker: ADV0069AU
commentary_block: Array
factsheet_url:
http://www.advance.com.au/funds/sector-multi-blend-funds/cash-multi-blend-fund.asp
release_schedule: Monthly
fund_features:
Advance Cash Multi-Blend Fund seeks to provide investors with a total investment return (before fees and taxes) that outperforms the benchmark over one year, maintaining liquidity, avoiding unnecessary risk and therefore seeking to maintain capital value.
- The Fund is an actively managed multi-manager portfolio of cash and short term fixed interest securities and instruments. It is invest in various types of money market and short dated Australian fixed interest securities and instruments.
- The securities are managed by investment managers selected by Advance.
- Liquidity, credit and duration risks are managed by analysing the monetary policy cycle and other economic factors.
manager_contact_details: Array
asset_class: Cash
asset_category: Australian Cash
peer_benchmark: Cash - Australian Cash Index
broad_market_index: RBA Cash Rate Target Index
structure: Managed Fund