August, 2023
Global bond markets were marginally lower over August with both the Barclays Capital Global Aggregate Bond Index (Hedged) and FTSE World Government Bond (ex-Australia) Index (Hedged) returning -0.3%. Apart from Germany, where yields dropped (-2bps to 2.44%), ten-year bond yields moved higher across major jurisdictions including the US (16bps to 4.10%), UK (6bps to 4.37%) and Japan (6bps to 0.64%). Twoyear bond yields were similar, decreasing in Germany (-6bps to 3.04%), while increasing in the UK (17bps to 5.16%), US (1bp to 4.98%) and Japan (3bps to 0.03%).
Returns for most Australian bondholders were positive over August. In a bull steepening move, 10-year bond yields decreased slightly (-3bps to 4.02%), alongside five-year bond yields (-6bps to 3.77%) and two-year bond yields (-24bps to 3.81%).
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/FP104-Advance-Australian-Fixed-Interest-Multi-Blend-Fund-Wholesale-Units-Aug-2023-1.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/2021/01/FP505-Advance-Australian-Fixed-Interest-Multi-Blend-Fund-Retail-Units-Jul-2023.pdfJune, 2023
Global bond markets generated a negative return over June with the Barclays Capital Global Aggregate Bond Index (Hedged) returning -0.2% and the FTSE World Government Bond (ex-Australia) Index (Hedged) returning -0.3%. Most ten-year bond yields moved higher over the month, increasing in the UK (20bps to 4.38%), the US (16bps to 3.81%), and Germany (14bps to 2.41%), while decreasing in Japan (-3bps to 0.40%). Two-year bond yields mostly moved higher over the month, increasing in the UK (93bps to 5.26%), the US (40bps to 4.94%) and Germany (49bps to 3.19%), while decreasing in Japan (-2bps to -0.08%). Returns for most Australian bondholders were negative over June as 10-year bond yields (42bps to 4.03%), five-year bond yields (58bps to 3.95%) and two-year bond yields (64bps to 4.20%) increased.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/FP104-Advance-Australian-Fixed-Interest-Multi-Blend-Fund-Wholesale-Units-Jun-2023.pdfApril, 2023
Global bond markets generated a positive return over April with the Barclays Capital Global Aggregate Bond Index (Hedged) returning 0.4% and the FTSE World Government Bond (ex-Australia) Index (Hedged) returning 0.2%. Most ten-year bond yields moved slightly higher over the month, increasing in the UK (23bps to 3.72%), Germany (2bps to 2.32%), and Japan (3bps to 0.36%), while decreasing in the US (-5bps to 3.43%). Most two-year bond yields also rose over the month, increasing in the UK (34bps to 3.78%) and Germany (5bps to 2.79%) while decreasing in the US (- 5bps to 4.09%) and remaining unchanged in Japan at -0.05%. Returns for most Australian bondholders were marginally positive over April despite 10-year bond yields increasing (4bps to 3.34%), five-year bond yields (4bps to 3.07%) and two-year bond yields remaining unchanged at 3.08%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/FP104-Advance-Australian-Fixed-Interest-Multi-Blend-Fund-Apr-2023.pdfMarch, 2023
The Advance Australian Fixed Interest Multi Blend Fund underperformed its benchmark in March with our underlying managers delivering a mixed relative result over the month. Pendal slightly underperformed the benchmark in March.
The domestic duration component of the fund was a positive over the month. The physical portfolio underperformed the benchmark. The government sector positioning added to performance however the non-government portion of the portfolio detracted. Supra-nationals, industrials and real estate sector positioning were the main drivers of the underperformance.
Janus Henderson underperformed the benchmark over the month. Spreads on semi-government bonds tracked wider versus Treasuries, contributing negatively to performance on a relative basis. Credit spreads weakened over the month, which was also a detractor to performance. Macquarie delivered a positive excess in March, driven by sector rotation, security selection as well as duration and curve. 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:February, 2023
The Advance Australian Fixed Interest Multi Blend Fund outperformed its benchmark in February with our underlying managers delivering a positive relative result over the month. Pendal delivered positive excess returns in February. The domestic duration component of the fund was a positive contributor. The physical portfolio outperformed the benchmark. The government sector positioning performed inline whilst the non-government portion of the portfolio performed well.
Financials, supra-nationals, infrastructure, and real estate sector positioning also added to performance. Janus Henderson outperformed the benchmark over the month with value added through active management in both rates and credit. Overweight duration to swap rates over government bonds yields has been a positive contributor. Active allocations to Tier 2 debt was a strong driver of returns as these assets significantly outperformed. Macquarie also delivered a positive excess in February, driven by sector rotation, security selection as well as duration and curve. The Portfolio’s overweight credit positioning contributed positively to performance as Australian credit spreads outperformed global peers. 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.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Advance-Australian-Fixed-Interest-Multi-Blend-Fund-factsheet-23.pdfJanuary, 2023
The Advance Australian Fixed Interest Multi Blend Fund outperformed its benchmark in January with our underlying managers delivering a positive relative result over the month. Pendal delivered a positive excess returns in January. The domestic duration component of the fund was a small positive. The physical portfolio outperformed the benchmark.
The government sector positioning was flat whilst the non-government portion of the portfolio performed well. Industrials, financials, real estate, and supra-nationals sector positioning added to performance. Janus Henderson outperformed the benchmark over the month, with value added through active management in both rates and credit. The fall in bond yields was one of the main drivers of return in the month. The Fund’s exposure to swaps was a positive contributor in January as well. Macquarie also delivered a positive excess in January, primarily driven by both rates and credit strategies. 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/2021/01/Advance-Australian-Fixed-Interest-Multi-Blend-Fund-factsheet-22.pdfDecember, 2022
The portfolio outperformed its benchmark in December with our underlying managers delivering a positive relative result over the month. Pendal delivered positive excess returns in December. The portfolio took advantage of the bond market rally in the first half of December to exit a US 5 year long duration position. The physical portfolio outperformed the benchmark. Both the government sector positioning and the non-government portion of the portfolio performed well. Supranationals, financials and industrials sector positioning added to performance. Janus Henderson outperformed the benchmark over the month.
The rise in yields was a detractor for long dated fixed rate bonds over the month. However, active portfolio management including having neutral duration positions throughout most of the month aided performance on a relative basis. Spreads moved slightly wider in semi-government bonds detracting from performance, while swap spreads outperformed government bonds contributing positively. Macquarie also delivered a positive excess in December, primarily driven by security selection as well as sector rotation. 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/2021/01/Advance-Australian-Fixed-Interest-Multi-Blend-Fund-factsheet-21.pdfNovember, 2022
The portfolio outperformed its benchmark in November with our underlying managers delivering a mixed result over the month.
Pendal delivered performance that was in line with the benchmark in November. The physical portfolio underperformed the benchmark. The government sector positioning detracted from performance as did the non-government portion of the portfolio. Supra-nationals and financials sector positioning however added to performance whilst real estate, infrastructure and industrials detracted.
Janus Henderson outperformed the benchmark over the month, with value added through active management in both rates and credit. Spread tightening in semi-government bonds aided performance in the month, outperforming government bonds on a relative basis. A slight overweight to duration vs the benchmark was also contributed.
Macquarie delivered a positive result in November, primarily driven by security selection as well as sector rotation. The overweight credit positioning contributed positively to performance as credit spreads tightened on option-adjusted spread basis over the month.
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/2021/01/Advance-Australian-Fixed-Interest-Multi-Blend-Fund-factsheet-20.pdfOctober, 2022
The Advance Australian Fixed Interest Multi Blend Fund underperformed the benchmark during the month of October. Our underlying managers delivering a mixed result over the month. Pendal delivered a positive excess return in October. The physical portfolio outperformed the benchmark. The government sector positioning added to performance, however, the non-government portion of the portfolio detracted. Industrials sector positioning added to performance whilst supra-nationals and financials detracted. Macquarie and Janus Henderson underperformed the benchmark over the month, primarily driven by the ongoing rates volatility and the widening in credit spreads. 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/2021/01/Advance-Australian-Fixed-Interest-Multi-Blend-Fund-factsheet-19.pdfSeptember, 2022
The Advance Australian Fixed Interest Multi Blend Fund underperformed the benchmark during the month of September. Our underlying managers delivered a mixed result over the month.
Pendal slightly underperformed the benchmark in September. The physical portfolio slightly detracted from performance. The government sector positioning underperformed whilst the non-government portion of the portfolio outperformed. Supra-nationals, financials, and industrials sector positioning added to performance.
Macquarie delivered a positive excess over the month, primarily driven by security selection as well as sector rotation. The Portfolio’s positioning remains focused in the front-end of the credit curve which outperformed as the credit curve steepened.
Janus Henderson underperformed due to bond yields rising. Allocations to high quality credit sectors, mostly AAA and AA type assets did cushion the impact although other sectors underperformed on a larger scale.
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 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/2021/01/Advance-Australian-Fixed-Interest-Multi-Blend-Fund-factsheet-18.pdfAugust, 2022
The fund outperformed its benchmark in August with our underlying managers delivering a mixed result over the month. Pendal outperformed the benchmark in August. The physical portfolio outperformed the benchmark while the duration component was a negative. Both the government sector positioning and the non-government portion of the portfolio performed well. Financials, industrials, and real estate sector positioning added to performance. Macquarie delivered a positive excess over the month, primarily driven by security selection as well as sector rotation. The Portfolio’s overweight credit positioning contributed positively to performance as Australian credit spreads rallied over the month.
Janus Henderson slightly underperformed due to bond yields rising, as well as some impact from semi governments, bond swap, and non-financial credit. Favoured allocations to high quality credit sectors like bank senior and covered bonds performed well over the month and was a positive contributor to returns. 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. In the United States, inflation was lower than economists’ consensus, with headline inflation flat in the month of July and core rising 0.3%. Much of the focus was on Fed Chair Powell’s address at Jackson Hole late in the month. The key points from his speech were that restoring price stability will take some time and will likely require a period of below trend growth, which will also bring some pain to households and business. Powell added that a failure to restore price stability would mean a far greater pain, although current inflation expectations remain anchored at the moment.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Advance-Australian-Fixed-Interest-Multi-Blend-Fund-factsheet-17.pdfJuly, 2022
The Advance Australian Fixed Interest Multi-Blend Fund outperformed its benchmark in July with our underlying managers delivering a mixed result over the month. Pendal slightly underperformed the benchmark in July. The duration component was a positive, while the physical portfolio underperformed the benchmark. The government sector positioning outperformed, however the non-government portion of the portfolio detracted from performance. Industrials and real estate sector positioning were a drag on performance. Macquarie delivered a positive excess over the month. The credit security selection and the overweight credit positioning helped drive the outperformance. The portfolio held a long bias to duration during July, which added to returns as bonds rallied given that market focus moved back towards recession risk. Janus Henderson outperformed due to its yield curve strategy as well as its credit strategy of accumulating more liquid high quality credit assets (predominantly AAA, AA). 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.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Advance-Australian-Fixed-Interest-Multi-Blend-Fund-factsheet-16.pdfJune, 2022
The Advance Australian Fixed Interest Multi-Blend Fund underperformed the benchmark during the month of June. Our underlying managers delivering a negative result over the month.
Pendal underperformed the benchmark. As the government sector positioning underperformed whilst the non-government portion of the portfolio also detracted from performance. The physical portfolio underperformed the benchmark, with financials and supranationals sector positioning dragging the portfolio lower. Janus Henderson detracted as its long duration position relative to the benchmark, together with an overweight exposure across credit, added to negativeexcess returns.
In Macquarie’s case (formerly AMP), credit positioning detracted from performance, as the impact of credit spread movements more than offset the contribution from the excess carry earned on credit securities held. Interest rate management also impacted, as the negative impact from duration management more than offset the positive contribution from yield curve positioning. 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.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Advance-Australian-Fixed-Interest-Multi-Blend-Fund-factsheet-14.pdfMay, 2022
The Advance Australian Fixed Interest Multi-Blend Fund underperformed the benchmark during the month of May. Our underlying managers delivered a mixed result over the month.
Pendal performed in line with the benchmark. While the duration component, cross market positions and government sector positioning added to the performance, the physical portfolio underperformed the benchmark, with the financials and supranationals sector positioning dragging the portfolio lower. Janus Henderson detracted as its long duration position relative to the benchmark, together with an overweight exposure across credit, added to negative excess returns.
In Macquarie’s (formerly AMP) case, credit positioning detracted from performance as the impact of credit spread movements more than offset the contribution from the excess carry earned on credit securities held. Interest rate management also had an impact as the resultant effect of yield curve positioning and duration management detracted.
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,
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Advance-Australian-Fixed-Interest-Multi-Blend-Fund-factsheet-13.pdfApril, 2022
The Advance Australian Fixed Interest Multi-blend Fund underperformed its benchmark in April with our underlying managers delivering a negative result over the month. Pendal underperformed the benchmark as the physical portfolio largely detracted due to the markets forecasting rates higher than Pendal’s expectation. Whilst government sector positions added slightly to performance, cross market trades, financials and Supranationals sector positioning dragged the portfolio lower.
Janus Henderson detracted as its long duration position relative to the benchmark, together with an overweight exposure across credit, added to negative excess returns. In Macquarie’s case (formerly AMP), credit positioning detracted from performance, as the impact of credit spread movements more than offset the contribution from the excess carry earned on credit securities held. The overall impact of interest rate management was however almost neutral. 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
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Advance-Australian-Fixed-Interest-Multi-Blend-Fund-factsheet-11.pdfFebruary, 2022
The Fund underperformed the benchmark during the month of February. Our underlying managers delivered a negative result over the month. Pendal underperformed the benchmark with the physical portfolio driving the bulk of the underperformance. AMP also underperformed, despite interest rate management benefitting performance, this was insufficient to offset the drag from credit positioning which detracted as the impact of credit spread widening more than offset the contribution from excess carry. Finally, Janus Henderson detracted as its long duration position relative to the benchmark, together with an overweight exposure across credit both added to negative excess returns.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.
Central bank meetings in Europe early in the month saw European yields soar with the European Central Bank (ECB) turning notably hawkish. Whilst policy settings remain unchanged, ECB President Lagarde in a press conference noted that the Governing Council were “unanimous with their serious concern about the inflation outlook”. Previous references to rate hikes being unlikely in 2022 were notably missing in the conference. The ECB’s data dependence was highlighted and Lagarde signalled an openness to rate hikes against upside inflation risks. On the same day, the Bank of England (BoE) tightened monetary policy by a further 25 basis points to 0.50%. Despite the near 50 basis point move, the BoE Governor Bailey’s tone in the press conference was more dovish than his ECB counterpart. The Governor noted that in the second half of the year there is a clear risk that inflation is moving lower and ‘there is a clear risk we could go under target.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Advance-Australian-Fixed-Interest-Multi-Blend-Fund-factsheet-9.pdfJanuary, 2022
The Advance Australian Fixed Interest Multi Blend Fund outperformed the benchmark during the month of January. Pendal underperformed the benchmark at the margins with the physical portfolio driving the bulk of the underperformance. Henderson also underperformed, with duration and credit both detracting. AMP delivered positive excess returns, with the strategy’s interest rate management benefitting, reflecting the contributions from duration management and yield curve positioning.
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/2021/01/Advance-Australian-Fixed-Interest-Multi-Blend-Fund-factsheet-8.pdfDecember, 2021
The Advance Australian Fixed Interest Multi Blend Fund outperformed the benchmark during the month of December. All our underlying managers outperformed the index. Interest rate management was broadly positive, reflecting the contributions from yield curve positioning and duration management across our manager line up. AMP, Henderson and Pendal were positioned for higher bond yields. Credit positioning also benefitted performance, as the negative impact of credit spread widening earlier in the month was reversed by month end as investors became less concerned about the Omicron variant. The excess carry earned on credit securities held also helped portfolio performance. Risk markets performed strongly, and Central banks continued their more hawkish tilt during the month despite the emergence of the Omicron variant. The Reserve Bank of Australia (RBA) left policy settings unchanged at their December meeting. In their statement the RBA acknowledge the uncertainty posed by the Omicron strain but do not expect it to derail the recovery. There was a slight tweak regarding the underlying inflation forecast. Underlying inflation is forecast to 2.5% over 2023 whereas in their November statement underlying inflation was forecast to be no higher than 2.5% at the end of 2023.
inflation may be higher at the end of 2023 than what the RBA previously forecast, potentially bringing forward the timing of when they expect to hike next. The other key part of their statement was in relation to their bond purchase program and whether it is extended when the current program ends in February. The RBA pointed out the three considerations to guide its decision: the actions of other central banks, how the Australian market is functioning and progress towards the goals of full employment and inflation consistent with the target. On current indications, there is sufficient evidence on all three fronts to warrant a cessation of the program.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Advance-Australian-Fixed-Interest-Multi-Blend-Fund-factsheet-6.pdfNovember, 2021
The Advance Defensive Yield Multi Blend Fund underperformed the benchmark during the month of November. Performance was negative with all our underlying managers underperforming the benchmark. Notwithstanding a small tailwind coming from the duration position as rates declined for intermediate maturities, underperformance was driven by wider credit spreads and, in particular, a wider swap spread curve which typically occurs during periods of higher risk aversion. Fixed income spread sectors underperformed government bonds amid renewed market uncertainty. Sovereign bond yields declined in unison, and credit spreads widened as the detection of the COVID-19 variant Omicron added new concerns to the increasing inflationary strain. US economic data released was largely positive. Non-farm payrolls posted gains, the unemployment rate dropped, and weekly jobless claims edged down steadily. Eurozone’s composite PMI rose on improved service sector activity. In the UK, manufacturing PMI improved, while near-decade high energy prices stoked inflation. Robust export demand in China lifted industrial production. Japan’s Q3 GDP contracted as supply disruptions and weak consumption weighed on growth. Canada’s unemployment rate fell, though the number of jobs added was below estimates. In Australia, labour force participation recovered but unemployment rose.
Fed Chair Powell was nominated for a second term. Fed Chair comments and the FOMC meeting minutes alluded to a fast-tracked taper if inflation persists. The Bank of England voted to maintain rates on hold and kept the QE target unchanged. The Riksbank projected its first rate hike in Q2 of 2024. The RBA abandoned its bond-yield target. The Norges Bank anticipates a rate hike in December. The Reserve Bank of New Zealand disappointed with a 25bps rate hike relative to market expectations for a 50bps rate hike. All other major central banks kept their policy rates unchanged. Most global sovereign yields declined across developed and emerging markets; a move accelerated by the discovery of the Omicron variant. Markets reassessed the likelihood of future rate hikes, even as inflation remained stronger than many had expected, particularly in the US and Europe. The US Treasury yield curve flattened after the initial yield increase from Fed’s hawkish comments was offset by a subsequent drop stemming from the discovery of Omicron. European yields fell across the curve, impacted by news of rising virus cases, new potential lockdowns, and Chancellor Merkel’s cautionary remarks. APAC rates also fell sharply, while EM yields ended mixed. The Bloomberg TIPS index returned 0.89% on a total return basis and the ten-year breakeven inflation rate decreased by 7bps to 2.51% during the month
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Advance-Defensive-Yield-Multi-Blend-Fund-factsheet.pdfOctober, 2021
The Advance Australian Fixed Interest Multi Blend Fund returned -1.46%, outperforming the AusBond Composite Index which returned -1.51% over the month of September. Portfolio performance was broadly neutral to positive with AMP and Janus Henderson outperforming relative to the index with Pendal flat versus the benchmark.
Duration led strategies were mostly positive with all managers outperforming at the margin owing to an outright short position versus the benchmark. This was coupled with the fact that Australian government bond yields rose modestly across the curve over the month. A curve steepener position implemented by our underlying managers also contributed positively. Credit positioning was marginally negative across our manager line up, reflecting the negative contributions from modestly wider credit spreads which was partially offset by the excess carry earned on credit securities held.
Australian Q2 growth rose by 0.7%, taking the annual rate to 9.6% - a stellar number but largely due to base effects from the contraction witnessed in the economy in the Q1 of 2020. Third quarter economic growth will likely be impacted by lockdowns and will see the economy contract. The unemployment rate fell by 0.1% to 4.5% in August, due to the reduction in the participation rate rather than actual employment growth, which fell by 146,300 jobs in the month. Business surveys indicate a willingness by employers to retain workers due to a tightening labour market and potential difficulty in attracting employees when the economy fully re-opens. Australian rates sold off over the month, with 10-year bonds ending the month 34bps higher at 1.48%. In the United States 10-year bonds were off 18bps to 1.49%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Advance-Australian-Fixed-Interest-Multi-Blend-Fund-factsheet-5.pdfAugust, 2021
The Advance Australian Fixed Interest Multi Blend Fund underperformed the benchmark during the month. Manager performance was mixed, with AMP and Janus Henderson underperforming relative to the index and Pendal flat versus the benchmark. Duration led strategies were mostly negative, with all managers underperforming at the margin owing to an outright short position versus the benchmark, coupled with the fact that Australian government bond yields declined modestly across the curve over the month. However, positive contributions from curve positioning did offset some of the losses as our underlying managers benefitted from curve flattener positions. Credit positioning was marginally negative across our manager line up, reflecting the negative contributions from modestly wider credit spreads, partially offset by the excess carry earned on credit securities held. 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
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Advance-Australian-Fixed-Interest-Multi-Blend-Fund-factsheet-4.pdfJune, 2021
The Advance Australian Fixed Interest Multi Blend Fund outperformed the benchmark during the month of June. Manager performance was broadly positive with AMP and Janus Henderson outperforming relative to the index, with Pendal flat versus the benchmark. Duration led strategies were mixed with Janus Henderson and AMP benefiting from a curve flattener position. Pendal however detracted at the margin. Credit positioning benefited performance across our manager line up, reflecting the contributions from credit spread movements and the excess carry earned on credit securities held.
The Reserve Bank of Australia (RBA) left monetary policy unchanged at their June meeting. There were, however, some tweaks to their accompanying statement. In its May statement the RBA stated that the “board is prepared to undertake further bond purchases to assist with progress towards the goals of full employment and inflation”. This was omitted from the June statement and suggests that some tapering of the bond purchase program may occur. Q1 economic growth was released following the RBA’s statement and reflected Australia’s impressive recovery since the depths of the pandemic induced recession. Growth expanded by a better than expected 1.8% in the quarter, taking the annual rate to 1.1%. The economy is now 0.8% above its pre-pandemic level.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Advance-Australian-Fixed-Interest-Multi-Blend-Fund-factsheet-3.pdfMarch, 2021
The Federal Reserve (Fed) left its policy settings unchanged at its 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/2021/01/Advance-Australian-Fixed-Interest-Multi-Blend-Fund-factsheet-1.pdfNovember, 2020
The Advance Australian Fixed Interest Multi Blend Fund recorded positive absolute returns during the month of November. The Fund also strongly outperformed the benchmark on a relative basis with all managers outperforming the broader index. The strong performance across credit instruments gave our underlying managers another boost in November’s performance. In Pendal’s case, the physical portfolio performed strongly outperforming the benchmark. Pendal’s government sector positioning performed well whilst the non-government portion of the portfolio had strong performance.
Infrastructure, Industrials and Utilities sectors all recorded strong contributions. Janus Henderson delivered strong relative returns over the month as credit spreads tightened across fixed interest sectors in November. Sector allocation in credit was a large contributor as the fund maintained a high allocation to recession-proof industries all of which perform well as risk assets continued to rally. Similar themes were also expressed in AMP’s portfolio whereby credit positioning benefited performance, reflecting the contributions from credit spread movements and the excess carry earned on credit securities held. Interest rate management had minimal impact across the underlying managers as bond yields continued to trade in a narrow range.
Domestically the Reserve Bank of Australia (RBA) eased monetary policy further at their November meeting, cutting the cash rate, term funding facility and yield curve control to 0.10% and the rate paid on exchange settlement balances to zero. Additionally, the RBA also announced quantitative easing (QE) in the form of $100bn of bond purchases to be undertaken over the next 6 months, split 80/20 between Government bond purchases and Semi-Government purchases. The RBA stated that they will not increase the cash rate until actual (rather than forecast) inflation is sustainably within the 2 to 3% target range. This implies the front end of the curve is likely to remain anchored for some time.
Governor Lowe also conducted a Q&A session following the unprecedented decision. In the session he stated that there is little or no appetite to cut the cash rate further although it is something that would have to be considered if other major central banks (i.e., the Federal Reserve) went into negative territory. Any further monetary policy easing from the RBA is likely to occur via asset purchases. Offshore, the Federal Reserve (the Fed) reiterated its forward guidance from September, stating that the fed funds rate will be held at 0.-0.25% until the economy is back to maximum employment and inflation has risen to 2% and is on track to moderately exceed 2% for some time, reflecting their move to average inflation targeting It was a strong month for credit and equity markets in November.
The main drivers behind this strength was positive COVID-19 vaccine results announced by a number of leading pharmaceutical companies (Pfizer/ BioNTech, Moderna & AstraZeneca) with very high efficacy rates. The strong vaccine results outweigh the continued deterioration in US COVID19 cases. The Australian iTraxx index (Series 34 contract – a proxy for credit markets) traded in a 14bps range finishing the month 11bps tighter to +60bps. Physical credit spreads had the strongest month in over 6 years with the average credit spread narrowing 13bps. The best performing sectors were Real Estate, Infrastructure and Industrials, tightening 44bps, 43bps & 26bps respectively on the back of the positive vaccine news.
The worst performing sectors were domestic Banks and Supranationals both only narrowing 6bps. Semi-government bonds tightened 2bps to Commonwealth government bonds. In this positive risk on environment, Australian yields ended marginally higher on the month even as US yields drifted lower. Australian 10 year bond yields ended the month 8bps higher at 0.90%. US 10 year yields outperformed their global peers, ending the month 3bps lower at 0.84%. The Australian bond market, as measured by the Bloomberg AusBond Composite 0+ Yr Index, was down -0.11% over the month. Over the past year, the Australian bond market has returned 3.04%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/Advance-Australian-Fixed-Interest-Multi-Blend-Fund-factsheet.pdfticker: ADV0084AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
Fund factsheet
https://www.multimanager.mercer.com.au/fund-facts/single-sector-funds.html
manager_contact_details: Array
asset_class: Fixed Income
asset_category: Bonds - Australia
peer_benchmark: Fixed Income - Bonds - Australia Index
broad_market_index: Australian Bond Composite 0-10Y Index
structure: Managed Fund
fund_features:
Advance Australian Fixed Interest Multi-blend Wholesale seeks to provide a source of income from Australian fixed interest exposure with a total investment return (before fees and taxes) that outperforms the benchmark over periods of three years or longer.
- The Fund invests in a wide range of Australian issued government, semi-government and corporate fixed interest securities and instruments.
- It may also invest in debt securities issued by supranationals and non-Australian governments and corporates.
- All foreign exposures are fully hedged to Australian dollars.
- Manager Address : Tower Two International Towers Sydney Mercantile Walk 200 Barangaroo Avenue Barangaroo NSW 2000
- Phone : 1800 819 935
- Website : http://www.advance.com.au/default.asp
- Contact Email : investorservices@advance.com.au
- Contact Page : http://www.advance.com.au/about-advance/contact-us.asp