September, 2023
Duration was held neutral through the September Quarter, and as a result gross returns to 30 September were in line with those of the Bloomberg Ausbond Composite Bond Index 0+ over the quarter, down 0.28%. After fees, retail units were down 0.41% and wholesale units were down 0.36%.
While volatile between a band of 4-4.4% over July and August, gross returns for each of those months were positive at 0.52% and 0.73% respectively, but while inflation has peaked both domestically and in the US, it has remained persistently above central bank targets, particularly in services, and employment markets have remained resilient.
Through September, as a narrative of central banks remaining “higher for longer” took hold, the 10y yield rose some 50bps to just below 4.50%, and September returns were negative as a result, down 1.54% overall and dragging the outcome for the quarter negative as well.
As yields rose in the last weeks of the quarter, the fund has added a small long duration position in 10y government bonds, believing there is little room for yields to continue to move persistently higher without creating other strains across the economy. We have also taken an overweight position (~5%) in shorter dated credit at the expense of government holdings in order to capture some rolldown as the bonds move toward maturity.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/fixed-interest-fund-retail-september-2023.pdfJune, 2023
The net return of the Australian Ethical Fixed Interest Fund (Retail) for the quarter ended June 2023 was -3.07%, 0.12% behind the -2.95% return of the benchmark Bloomberg Ausbond Composite Bond Index 0+, with the gross return of the fund was -2.95%.
For the financial year to June 2023, the fund return was +0.85% (retail, net of fees), with the Bloomberg Ausbond Composite Bond Index 0+ return +1.24%. The 12 month gross return of the fund was +1.35%.
The negative return for the quarter was attributable to rising yields. The rise in yields reversed the falls seen over March 2023 following the collapse of Silicon Valley Bank and other regional banks in the United States. The Australian 10y yield, which had fallen 0.51% over the month of March, rose 0.71% over the June quarter. As the perceived risk of ongoing issues in the US banking sector receded, market focus returned to the need for central banks to continue tightening policy. It is accepted that the post-pandemic inflation peak has passed, but it remains unclear whether inflation with return to central bank target levels, with services inflation a particular focus both in the US and in Australia. Employment outcomes in both countries have run ahead of expectations through the quarter, with the May outcome for Australia driving a decline in the unemployment rate back to 3.6% despite RBA expectations it will end 2023 at 4.0% as the economy cools.
The fund has ended the June Quarter with a neutral duration position, accepting market pricing for the risk of additional RBA hikes over the latter half of 2023, but way of the aggressive cuts to policy priced for the US and any move higher in yields that may stem from trimming those expectations should economic data continue to surprise to the upside.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/fixed-interest-fund-wholesale-june-2023.pdfMarch, 2023
Australian Ethical is one of Australia’s leading ethical fund managers. By investing responsibly in well-managed ethical companies, we deliver competitive financial performance to our clients and positive change to society and the environment. Since our inception in 1986, our Ethical Charter has guided all investment decisions and underpinned our business practices. Every year 10 per cent of our profits* are distributed to charitable organisations and social impact initiatives through The Australian Ethical Foundation.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/fixed-interest-fund-wholesale-march-2023.pdfJanuary, 2023
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/fixed-interest-fund-wholesale-january-2023.pdfJanuary, 2022
The net return of the Australian Ethical Fixed Interest Fund (Retail) for the quarter ended December 2022 gained 0.3% (Wholesale 0.4%), 0.1% behind the +0.4% return for the benchmark Bloomberg Ausbond Composite Bond Index 0+.
Bond markets remained volatile through the quarter, with the 10y yield rising 0.18% over the quarter to close the year at 4.05%, after originally seeing a low of 3.32% in early December. Where originally tentative signs of inflation having peaked came through in the monthly US data, a move by the Bank of Japan to loosen the tolerance band on their ongoing Yield Curve Control measures roiled bond markets and drove long bond yields sharply higher.
Markets ended 2022 trying to assess whether the Bank of Japan moves signaled central banks globally would remain hawkish into 2023, and/or whether Japan’s famously low yields might edge higher and encourage some funds invested offshore to return home, sapping demand and pressuring yields higher. With another US CPI print since year end again suggesting inflation continues to ease, since year end yields have retreated from their end 2022 level.
Domestically the RBA remains priced to hike again in the first half of 2022, with considerable uncertainty what direction rates might take in the latter part of the year. The fund remains with a neutral duration position as a result.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/fixed-interest-fund-wholesale-december-2022.pdfSeptember, 2022
The net of fees return of the Australian Ethical Fixed Interest Fund (Retail) for the September Quarter was -0.73% (-0.68% Wholesale), below that of its Benchmark, the Bloomberg Ausbond Composite Bond Index 0+. Yields closed the quarter higher, with the 10y bond rate rising 0.22% to 3.88%, but the path was non-linear and volatile.
In the month of July, yields fell as expectations of highly aggressive central bank policy (hikes of +1% at a single meeting for the Federal Reserve or 0.75% for the Reserve Bank of Australia) were unwound. Markets had been buoyed by the possibility of a slowing in the pace of rate hikes after Jerome Powell, the chair of the Federal Reserve suggested rate rises to July had seen the cash rate reach some members estimates of neutral. The 10y bond yield fell 60 basis points over July to 3.05%, which saw the fund and benchmark perform positively, up just over 3.3%.
In August however, this move reversed, as Fed speakers sought to counter the benign view, emphasizing the fight against inflation was ongoing and the cash rate would need to move into outright restrictive territory, with Powell later shifting language to highlight the probability of some “pain” yet ahead for households and businesses. The fund and index fell 2.5% as a result and fell a further 1.4% over September as yields rose aggressively, with the 10y marking a high of 4.1% before easing into the end of the quarter.
The fund remains neutral duration, with modified duration at 5.16 vs the index at 5.20, and the yield to maturity at 3.97%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/fixed-interest-fund-wholesale-september-2022.pdfJune, 2022
The return of the Australian Ethical Fixed Interest Fund (Wholesale) for the June Quarter was -3.91% net of fees. Retail units declined -3.96% net of fees. The fund benchmark, the Bloomberg Ausbond Composite Bond Index 0+ declined -3.81%. The June quarter continued the same themes that were present in the March Quarter, with yields rising considerably and credit spreads widening. Markets have moved to price an aggressive response from central banks to high rates of inflation, with expectations they will need to go beyond normalization of monetary policy to pre-pandemic settings instead targeting policy that seeks to restrict activity.
Government bond yields increased a further 77bps over the quarter, with the 10- year bond yield increasing to 3.57%, having increased 1.11% in the March quarter. In June in particular, the 10-year yield reached a peak above 4.1% mid-month, before easing back as market fears about a possible recession began to emerge.
The yield to maturity of the Fixed Interest Fund sits at 3.55% at the end of June, in line with the benchmark yield at 3.56%, having started the year more than 2% lower at 1.46%. When bond yields rise, the market value of those bonds declines, and the extent of that movement is determined by the duration of the bond (or portfolio). Through the calendar year to date the fund has been positioned with a neutral duration relative to the index, and at the end of June fund modified duration sat at 5.2.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/fixed-interest-fund-wholesale-june-2022.pdfMarch, 2022
March Quarter gross returns for the Australian Ethical Fixed Interest Fund were -5.98%, 0.10% behind the fund benchmark, the Bloomberg Ausbond Composite Bond Index 0+. After fees the retail units fell 6.10% and wholesale units fell 6.05%. The significant decline for the quarter follows a volatile quarter which saw bond yields rising at almost all points across the yield curve: the 10 year yield increased from 1.6% to 2.8%. This repricing of bonds quickly moved beyond the anticipated “normalization” of interest rate policy by Central Banks, away from emergency settings introduced at the start of the pandemic, and instead quickly shifted to pricing a more aggressive stance of policy where interest rates are expected to be increased beyond a “neutral” level to a restrictive stance in order to fight inflation. This followed comments from the US Federal Reserve at their March meeting, indicating a willingness to do what was required to restore price stability after US inflation exceeded 7% though the first reads of the year. When bond yields rise, the market value of those bonds declines, and the extent of that movement is determined by the duration of the bond (or portfolio).
Since the end of the previous quarter, the fund has been positioned with a neutral duration versus the benchmark with a portfolio average of 5.8. The overall yield to maturity of the fund increased from 1.44% at the end of December to 2.59% at the end of the quarter. The fund remains in a neutral duration position.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/fixed-interest-fund-wholesale-march-2022.pdfSeptember, 2020
The Fixed Interest Fund performed slightly behind the benchmark index after fees over the September quarter, rising 0.8% (0.9% Wholesale Fund) against the 1.02% return of the Bloomberg Ausbond Composite Bond Index. In the wake of the economic disruptions caused by COVID-19, the performance of fixed income has been determined by the capacity and outlook for central banks and governments to continue to provide support.
Over the September quarter both the Governor and Deputy Governor of the Reserve Bank of Australia (RBA) have suggested that a further small cut to the official cash rate may yet be in the RBA’s toolkit. Towards the end of the quarter markets had begun to price in expectations that this cut would be applied to the cash rate, the target rate for 3- year government bonds under yield curve control operations and the rate at which funding is made available to banks under the Term Funding Facility. The Fixed Interest Fund retained its neutral duration position throughout the quarter, delivering in-line performance before fees.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/fixed-interest-fund-wholesale-september-2020.pdfticker: AUG0023AU
release_schedule: Quarterly
commentary_block: Array
factsheet_url:
https://www.australianethical.com.au/personal/managed-funds/monthly-quarterly-reports/
Wholesale funds
Select the related fund name =>
Fixed Interest Fund (Wholesale)
“March / June / September / December”
Note: Commentary available in quarterly reports (March, June, September, December)
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:
Australian Ethical Fixed Interest WS aims provide exposure to primarily Australian fixed interest securities that support the Australian Ethical Charter, generating income with some capital growth potential over the medium to long term. The fund seeks to invest in a diversified portfolio of interest-bearing investments generating income. The Fund is invested in primarily fixed rate bonds, from issuers such as the Commonwealth and State Governments, banks and other corporate issuers that meet the Australian Ethical Charter. The Fund aims to match the return of the UBS Composite Bond Index.
- Manager Address : Level 8, 130 Pitt Street Sydney NSW 2000
- Phone : 1800 021 227
- Website : https://www.australianethical.com.au/
- Contact Email : enquiries@australianethical.com.au
- Contact Page : https://www.australianethical.com.au/contact-us/