September, 2023
The Janus Henderson Conservative Fixed Interest Fund (Fund) returned 0.35% (gross). The Fund outperformed the Bloomberg AusBond Bank Bill Index (Benchmark) by 0.01% (gross) in September. The Fund continues its outperformance, beating the Benchmark over the longer term including by 1.22% (gross) over the year, and 0.68% (gross) since inception per annum.
Australian credit performed positively in September, buoyed by the embedded elevated yields while spreads were broadly unchanged. We remain cautious and selective on credit, buying in the industries we like such as inflation protected industries, senior bank paper, and high quality well collateralised Asset Backed Security (ABS) structures.
Returns from both money market rates and high quality credit continued to deliver good results for investors. Income generation remains strong and local Australian high grade credit continues to add value with credit spreads rallying over the quarter, having now moved from being cheap to being closer to fair. During September, ongoing supply from domestic and offshore banks modestly softened credit spreads with the floating rate credit market still outperforming bank bills, mainly from the additional income.
We have remained patient and positioned neutral versus the Benchmark on interest rate duration to navigate the ongoing volatility in the yield environment. As the tightening cycle reaches a mature phase, we are biased to lock in some of the yield levels via adding duration to the portfolio at attractive yields as we see value emerging versus our view of fair value. During September we left duration unchanged while we await more extreme yield overshoots as an opportunity to move overweight duration.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/JanusHendersonConservativeFixedInterestFund_MonthlyReport-2-1.pdfAugust, 2023
The Janus Henderson Conservative Fixed Interest Fund (Fund) returned 0.51% (gross). The Fund outperformed the Bloomberg AusBond Bank Bill Index (Benchmark) by 0.14% (gross) in August. The Fund continues its outperformance, beating the Benchmark over the longer term including by 1.14% (gross) over the year, and 0.68% (gross) since inception per annum.
Credit performed well in August, buoyed by the embedded elevated yields which offset some spread widening. We took profit on some of the credit in the portfolio, whilst maintaining high quality credit positions that we are comfortable with.
Returns from both money market rates and high quality credit continued to deliver good results for investors. Income generation remains strong and local Australian high grade credit continues to add value this year with credit spreads rallying further.
We have remained patient and neutral on duration to navigate the ongoing volatility in the yield environment, but as the tightening cycle reaches a mature phase, we are biased to lock in some of the yield levels via adding duration to the portfolio at attractive yields. During August we added a modest amount of duration as bond yields hit new highs mid-month.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/JanusHendersonConservativeFixedInterestFund_MonthlyReport-1-1.pdfJuly, 2023
The Janus Henderson Conservative Fixed Interest Fund (Fund) returned 0.49% (gross). The Fund outperformed the Bloomberg AusBond Bank Bill Index (Benchmark) by 0.12% (gross) in July. The Fund continues its outperformance, beating the Benchmark over the longer term including by 1.13% (gross) over the year, and 0.68% (gross) since inception per annum. It was a good month of outperformance from credit, returns benefitting from both additional income and some spread tightening. Overweight credit allocations were a positive contributor as a result.
Returns from both money market rates and high quality credit continued to perform well. Ongoing healthy levels of income as well as a modest positive contribution from credit spreads added value.
We have remained patient and neutral on duration to navigate the ongoing volatility in the yield environment, but as the tightening cycle reaches a mature phase, we are biased to lock in some of the yield levels via adding duration to the portfolio at attractive yields.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/JanusHendersonConservativeFixedInterestFund_MonthlyReport-16.pdfJune, 2023
The Janus Henderson Conservative Fixed Interest Fund (Fund) returned 0.41% (gross). The Fund outperformed the Bloomberg AusBond Bank Bill Index (Benchmark) by 0.11% (gross) in June. The Fund continues its outperformance, beating the Benchmark over the longer term including by 0.81% (net) over the year, and 0.21% (net) since inception per annum.
It was a good month of outperformance from credit, returns benefitting from both additional income and some spread tightening. Overweight credit allocations were a positive contributor as a result, and we continued to actively take profit on active positions added during FY23 that have moved from cheap back towards fairer valuations.
Portfolio returns benefited from healthy levels of income from money market rates and high grade credit spreads, a further positive contribution from tighter credit spreads also added value. We remained neutral interest rate duration, which protected capital during June, and favoured adding yield via shorter dated commercial paper with margins of 0.2-0.5% above bank bills. To navigate the volatile yield environment, we remain patient looking for potential yield overshoots to lock in higher levels of income.
Yield on the portfolio has risen as the market has removed near term cuts from the RBA cash profile. In the calmer market environment we took some profit on the credit spread rally year to date and have replenished liquidity.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/JanusHendersonConservativeFixedInterestFund_MonthlyReport-15.pdfMay, 2023
The Janus Henderson Conservative Fixed Interest Fund (Fund) returned 0.36% (gross). The Fund outperformed the Bloomberg AusBond Bank Bill Index (Benchmark) by 0.07% (gross) in May. The Fund continues its outperformance, beating the Benchmark over the longer term including by 0.76% (gross) over the year, and 0.67% (gross) since inception per annum exceeding the fund objective.
Overweight credit allocations were a positive contributor, benefiting during the month mainly from additional income and constructive spread movements. Returns were healthy and fairly stable in the money market and quality end of the floating rate credit market despite offshore noise. The portfolio benefited from healthy levels of income return as money market rates hover around 4%, as well as additional yield contribution from high grade credit spreads. We used the rise in bond yields to move from modestly underweight interest rate duration to neutral as market pricing more closely reflects our view of fair value. Yield on the portfolio has risen as the market has removed near term cuts from the RBA cash profile. In the calmer market environment we took some profit on the credit spread rally year to date and have replenished liquidity.
File:April, 2023
The Janus Henderson Conservative Fixed Interest Fund (Fund) returned 0.42% (gross). The Fund outperformed the Bloomberg AusBond Bank Bill Index (Benchmark) by 0.12% (gross) in April. The Fund continues its outperformance, beating the Benchmark over the longer term including by 0.54% (gross) over the year, and 0.67% (gross) since inception per annum. April was a good month for credit, with most of the attribution coming from higher coupon income as credit spreads stabilised.
The Fund added additional alpha by taking advantage of opportunities that arose after the Silicon Valley Bank collapse and Credit Suisse merger. Some of the safest segments from a default risk perspective cheapened as the baby was thrown out with the bath water. These rebounded well in April as rationality prevailed. We took the opportunity to take some profit on those trades that had rallied/rolled down. We remain cautious on the corporate debt sector whilst harnessing the income from taking larger positions in the highest quality credit segments. We remain under invested in higher beta securities with powder dry for future acquisition.
Monthly returns for the strategy resumed their calendar year outperformance. Despite a pause from the RBA, income returns on floating rate credit as well as money market securities remain healthy and were the main driver of returns and outperformance. Credit spreads also tightened modestly by 2-3bps on senior bank notes which recovered some of the softness seen in March. We retained a neutral to modest underweight stance on duration given the lack of pricing of further rate rises by the market which is contrary to our view of fair value.
File:March, 2023
The Janus Henderson Conservative Fixed Interest Fund (Fund) returned 0.16% (gross). The Fund underperformed the Bloomberg AusBond Bank Bill Index (Benchmark) by -0.12% (gross) in March.
Credit spreads weakened over the month, which was a detractor to performance. Generous coupon income helped to preserve capital in what was a challenging month for physical credit. Floating rate credit outperformed fixed rate as investors shifted out of fixed rate bonds and into floating rate notes following the rally in bond yields. Fixed rate bank and corporate credit, including Tier 2 debt, underperformed government bond equivalents.
This year has seen healthier returns for the Fund’s investors, benefiting from higher availability of monthly yield income. Despite a negative contribution from high grade credit allocations in March, the Fund’s weighting towards high quality investment grade credit and selective Tier 2 securities have outperformed, delivering positive excess returns year to date. We retained a neutral stance on duration given the significant swings in bond returns, over the past four months in particular.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/JanusHendersonConservativeFixedInterestFund_MonthlyReport-14.pdfFebruary, 2023
The Janus Henderson Conservative Fixed Interest Fund (Fund) returned 0.47% (gross). The Fund outperformed the Bloomberg AusBond Bank Bill Index (Benchmark) by 0.24% (gross) in February, which returned 0.23% on the month. Globally, credit spreads weakened over the month, with Australia outperforming with local spreads 5 basis points (bps) tighter despite strong supply. Generous coupon income also helped buoy performance in the month. Floating rate credit outperformed fixed rate notes given the rise in bond yields. Active allocations to Tier 2 debt were a strong driver of returns as these assets significantly outperformed. We have favoured generating excess return by having larger positions in high quality assets with greater liquidity, complemented with sub-sectors like Tier 2, where attractive value has been on offer. The new year has seen two strong months for excess returns, with the higher income available from cash yields and active credit selection complemented by capital gains on high quality credit spreads. Selective rotation in subsectors of credit enhanced returns, especially the portfolio's weighting towards high quality investment grade credit and selective Tier 2 securities which have materially outperformed.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/JanusHendersonConservativeFixedInterestFund_MonthlyReport-13.pdfJanuary, 2023
The Janus Henderson Conservative Fixed Interest Fund (Fund) returned 0.46% (gross). The Fund outperformed the Bloomberg AusBond Bank Bill Index (Benchmark) by 0.19% (gross) in January, which returned 0.27% on the month. Credit spreads tightened over the month. This, together with generous coupon income, helped buoy performance in the month. Fixed rate credit outperformed floating rate notes given the fall in yields on the risk-free rate.
We have favoured having larger positions in high quality assets rather than taking smaller positions in more volatile high beta sectors. A large contributor to returns was the income from higher cash yields and credit spread carry. In addition, decent spread tightening in credit boosted performance. Selective rotation in subsectors of credit enhanced returns, especially the portfolio's weighting towards high quality investment grade credit in resilient, outperforming industries.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/JanusHendersonConservativeFixedInterestFund_MonthlyReport-12.pdfDecember, 2022
The Janus Henderson Conservative Fixed Interest Fund (Fund) returned 0.42% (gross). The Fund outperformed the Bloomberg AusBond Bank Bill Index (Benchmark) by 0.17% (gross) in December, which returned 0.25% on the month. A decent rally in credit spreads together with generous coupon income led to outperformance in investment grade credit. Fixed rate underperformed floating rate notes given the rise in yields on the risk free rate. The largest contributor to returns was the Income from higher cash yields and credit spread carry . Spread movements were broadly unchanged as risk sentiment waned, following decent spread tightening in the month prior.
The decision by the Bank of Japan (BOJ) to lift its 10-year government bond yield curve control target from 0.25% to 0.5% roiled global bond markets. Australian government bond yields initially moved lower on signs that growth was slowing, before rapidly rising following the BOJ move. Flaring volatility saw risk appetite wane, with equity markets weaker and credit markets mixed. The Reserve Bank of Australia (RBA) lifted the cash rate by a widely expected 0.25% increment in early December, taking the cash rate to 3.1%. While noting monetary policy was not on a preset path, the RBA signalled that further tightening was likely over the period ahead, with the interval and size of moves to be guided by incoming data and the RBA’s assessment of the labour market and inflation outlook. Volatility returned to the short-term money market as markets reassessed the outlook for monetary policy. Three- and six-month bank bill yields lifted by 17.5bps and 20.5bps to end the month at 3.26% and 3.77%. In terms of the tightening cycle, markets are looking for the cash rate to peak close to 4.0% in late 2023.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/JanusHendersonConservativeFixedInterestFund_MonthlyReport-11.pdfNovember, 2022
The Janus Henderson Conservative Fixed Interest Fund (Fund) returned 0.49% (gross). The Fund outperformed the Bloomberg AusBond Bank Bill Index (Benchmark) by 0.24% (gross) in November, which returned by 0.25% on the month. A decent rally in credit spreads together with generous coupon income led to outperformance in investment grade credit. Fixed rate major bank senior outperformed floating rate notes. This proved to be a strong contributor given the Fund’s recent active selection bias towards fixed rate securities which have been outperforming due to ongoing investor demand. Income from higher cash yields and credit spread carry remain healthy contributors to total return. The cheapening in credit spreads in late October was sustained into the first half of November offering attractive entry points into AAA and AA rated new primary issuance which we took advantage of. Ongoing investor demand subsequently saw a decent spread rally of about 10-20 basis points which contributed strongly to performance. A tightening in swap yields versus government bond yields also helped fixed rate credit allocations to further outperform.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/JanusHendersonConservativeFixedInterestFund_MonthlyReport-10.pdfOctober, 2022
The Janus Henderson Conservative Fixed Interest Fund (Fund) underperformed the Bloomberg AusBond Bank Bill Index (Benchmark) by -0.11% (gross) in October, while the Benchmark gained by 0.24%. The underperformance against the Benchmark over the month came from the widening in credit spreads in high quality sectors including major bank senior, semi-government and bond swap spreads.
The Fund did take profit on some of our overweight position to major bank senior debt early in October, which cushioned some of the impact as spreads widened later in the month, albeit the Fund was still not immune. Income from elevated levels of bank bill yields and credit spread carry remain healthy contributors to total return. A near term rally in domestic bond yields was also a modest positive contributor in October. New primary issuance by major banks in the last week of October triggered broader market spread widening in credit resulting in negative contributions to return. The silver lining of the further lift in credit spreads is that it offers attractive entry points for investment in new credit issuance. With that in mind we redeployed liquid dry powder to extend credit allocation and spread duration into the new ANZ bank senior notes. Whilst the Fund now employs a healthy 'Yield-To-Maturity' and income is coming through, the volatility in bond markets is still impacting performance. We have seen these events through other market cycles and patience is required to navigate this environment.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/JanusHendersonConservativeFixedInterestFund_MonthlyReport-9.pdfSeptember, 2022
The Janus Henderson Conservative Fixed Interest Fund (Fund) underperformed the Bloomberg AusBond Bank Bill Index (Benchmark) by -0.06% (gross) in September, while the Benchmark gained by 0.15%. Over the past 3 months, the Fund has delivered an excess return of 0.2% (gross) above the Benchmark. Rising bond yields offset some of the benefits from yield income as modest overweight duration positioning and rising credit spreads were negative contributors for September. With heightened market uncertainty, the environment ahead bodes well for attractive entry points for new credit issuance. With that in mind we took profit on some recent credit additions which have outperformed reducing credit spread duration by 0.1yrs during September which as also rebuilt liquid dry powder.
Healthy yield levels and increases in cash rates are beginning to generate stronger total returns from yield income each month. Favoured allocations to high quality credit sectors, mostly AAA and AA type assets have cushioned the impact relative to other sectors which have underperformed to a larger magnitude. This is a deliberate position to navigate through the rising rate environment. Whilst the Fund now employs a healthy 'Yield-To-Maturity' and income is coming through, the volatility in bond markets is still impacting performance. We have seen these events through other market cycles and patience is required to navigate this environment.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/JanusHendersonConservativeFixedInterestFund_MonthlyReport-8.pdfAugust, 2022
The Janus Henderson Conservative Fixed Interest Fund (Fund) outperformed the Bloomberg AusBond Bank Bill Index (Benchmark) by 0.15% (gross) in August, while the Benchmark gained by 0.15%. Healthy yield levels and increases in cash rates are beginning to generate stronger total returns from yield income each month. 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. Major bank Tier 2 allocations materially outperformed other corporate credit during the month contributing positively. In terms of top down sector strategy, having previously preserved capital with significant credit protection via CDS earlier in the year our focus has been on accumulating more liquid high quality credit assets (predominantly AAA, AA). This exposure to credit was a positive contributor to performance in the month.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/JanusHendersonConservativeFixedInterestFund_MonthlyReport-7.pdfJuly, 2022
The Janus Henderson Conservative Fixed Interest Fund (Fund) outperformed the Bloomberg AusBond Bank Bill Index (Benchmark) by 0.11% (gross) in July, while the Benchmark gained by 0.12%.
The team’s ‘fair value’ interest rate process and qualitative judgement led us to position portfolios with the most overweight duration position in the history of portfolios by mid-June despite being a little early in adding duration and the recent reassessment by markets vindicates such a high conviction strategy now delivering results for our investors. Our targeted yield curve strategy focusing on the two to four-year part of the yield curve to effectively ‘lock in’ what we assessed as elevated yields unlikely to be fully delivered by the RBA benefited from this part of the yield curve rallying the most.
In terms of top down sector strategy, having previously preserved capital with significant credit protection via CDS earlier in the year our focus has been on accumulating more liquid high quality credit assets (predominantly AAA, AA). This exposure to credit was a positive contributor to performance in the month.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/JanusHendersonConservativeFixedInterestFund_MonthlyReport-6.pdfJune, 2022
Higher than expected inflation in the United States saw the Federal Reserve (Fed) respond with an outsized tightening and preparedness to push the US economy into recession to quell inflation if needed. The Reserve Bank of Australia (RBA) moved in a similar fashion and against this backdrop, yields surged higher across the curve. Risk appetite fell on rising recession risks with equity and credit markets significantly weaker. Short-term money market yields continued to rise, reflecting the shift by central banks to more front-end load tightening cycles. The three-month bank bill yield ended the month 64 basis points (bps) higher at 1.81%, while six-month bank bills ended 75bps higher at 2.67%. In terms of the tightening cycle, markets are looking for a 3.10% cash rate by year-end and around 3.75% by mid-2023. The RBA lifted the cash rate by a larger than expected 0.5% in early June, dispelling earlier signaling that ‘business as usual’ 0.25% moves lay ahead. Yields rose ahead of the RBA board meeting but the largest lift in yields came mid-month following US inflation data and the Fed’s 75bps lift in the US cash rate. Three-year government bond yields rose to as high as 3.69%, before ending the month 27.5bps higher at 3.12%.
The domestic primary activity was limited to financials, with corporates remaining on the side-lines. Given primary issuance was largely absent over the month, secondary floating rate credit posted a positive 0.05% return in June, recovering slightly from the weight of bank supply in May. The securitisation primary market remained active, with several issuers printing transactions.The Janus Henderson Conservative Fixed Interest Fund (Fund) underperformed the Bloomberg AusBond Bank Bill Index (Benchmark) by -0.24% (gross) in June, while the Benchmark gained by 0.05%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/JanusHendersonConservativeFixedInterestFund_MonthlyReport-5.pdfMay, 2022
Convicted moves and signaling by central banks to front-end load monetary policy tightening cycles look to have capped the rise in offshore and domestic yields. After peaking earlier in the month, yields began to fall as the focus shifted from central bank inflation-fighting resolve to theconsequences of tighter policy for growth. Equity and credit markets were weaker, while inflation expectations edged lower.
At the shorter end of the yield curve, money market yields rose as nearer-term monetary tightening was factored in. The three-month bank bill yield ended the month 46.5 basis points(bps) higher at 1.18%, while six-month bank bills ended 47bps higher at 1.93%. In terms of the tightening cycle, markets are looking for a 2.5% cash rate by year-end and around 3.25% by mid-2023. The three-year government bond yield peaked at 3.125% followingthe Reserve Bank of Australia (RBA) move, before easing back to close the month 13.5bpshigher at 2.84%.
Amid choppy conditions, the major banks were active issuers both offshore and domestically, across senior unsecured and covered bond formats. Significant new issue concessions paid byANZ, Westpac and NAB, led to a re-pricing of the Australian dollar major bank three and five-year senior unsecured spreads to ASW+90bps and +103bps respectively. Approximately 15bpswider over the month, these high-quality, liquid instruments are being offered at increasinglyattractive all-in yields. Other notable non-financial corporate transactions included a six-yeargreen bond issued by top quality “A” rated mall operator, Vicinity Centres, at ASW+165bps.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/JanusHendersonConservativeFixedInterestFund_MonthlyReport-4.pdfMarch, 2022
Offshore and domestic yields continued to rise, reflecting inflation pressures and expectationsfor a more aggressive and front-end loaded central bank tightening cycle. Risk appetite soured,with equity and credit markets softer, while inflation expectations edged upwards. Threeconsecutively higher core inflation readings provide the Reserve Bank of Australia (RBA) withthe smoking gun needed for a May lift-off in the cash rate. The short-term money market continued to reflect the pivot to an earlier start to a largetightening cycle. The three-month bank bill yield ended the month 48 basis points (bps) higherat 0.71%, while six-month bank bills ended 75bps higher at 1.45%. The three-year governmentbond yield rose as tightening expectations were brought forward and ended 37bps higher at2.71%.
In terms of the tightening cycle, markets have priced the cash rate lifting to 2.50% by Decemberand 3.25% by mid-2023. Such a lift would take monetary conditions from accommodative torestrictive and runs the risk of creating financial instability via falling asset prices and outrightrecession. The nature of the current inflation pulse does not warrant such a strong response inour view. Furthermore, by tightening sooner than expected several months ago, the RBA reduces the riskof getting too far behind the inflation curve. We currently see value at the shorter end of theyield curve as we anticipate a more moderate tightening cycle through to end 2023, and themarket is currently offering yields above our assessment of fair value.
Below we note that historically the bond market tends to bring forward cash rate tighteningexpectations, and often 3-year bond yields peak around the time of the first cash ratemovement. As the cash rate then progressively rises, bond yields can begin to rally fromalready elevated levels as actual delivery of monetary tightening lowers the growth outlook. Thispresents investors an opportunity to “lock in” higher yields at the turning point than may beavailable just investing in cash over the same period.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/JanusHendersonConservativeFixedInterestFund_MonthlyReport-3.pdfMarch, 2022
Offshore and domestic yields rose sharply following hawkish commentary from the US FederalReserve (Fed) after its first tightening. Inflation expectations rose as the impact of Russia’sinvasion of Ukraine on global supply chains, commodities and energy prices became moreapparent. Risk appetite initially fell, only to later recover.
Despite the Reserve Bank of Australia’s (RBA) patient stance, the three-year Australian government bond yield rose to as high as 2.47% as inflation fears saw markets factor in aggressive RBA monetary tightening. Despite a late-month rally, the three-year government bond yield ended an unprecedented 80 basis points (bps) higher at 2.34%. The short-term money market reflected the shift in expectations towards an earlier and larger tightening cycle.The three-month bank bill yield ended the month 15bps higher at 23bps, while six-month bank bills ended 45.5bps higher at 70.5bps. Markets have now fully priced in a 1.75% cash rate in only 9 months’ time to the end of 2022, and a a3.25% cash rate by the end of next year. To put this into context, a tightening cycle of 3% insuch a short period of time has never occurred in Australia. While in the early 2000’s, leading up to the Global Financial Crisis, policy was tightened by a cumulative 300bps, this was over a six-year period within the backdrop of a mining boom. This would also imply a mortgage rate bylate next year of around 6%. Coupled with a highly indebted consumer (via housing debt) would create a perfect storm if it were to come to fruition, and likely put a handbrake on the economicrecovery.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/JanusHendersonConservativeFixedInterestFund_MonthlyReport-.pdfJanuary, 2022
The Janus Henderson Australian Fixed Interest Fund (Fund) returned -1.33% (net) and -1.29%(gross) in January. The Fund underperformed the Bloomberg AusBond Composite 0+ Yr Index(Benchmark) by -0.31% (net) in January, which fell by 1.02%. However, the Fund continues itsoutperformance, beating the Benchmark across longer time periods, including by 0.06% (net)over the year, and 0.29% (net) p.a. since inception. A change in narrative by the US Federal Reserve (Fed), a higher-than-expected domesticinflation read, and subsequent likelihood of rate hikes by the Reserve Bank of Australia (RBA)this year resulted in poor bond market performance in January. Rates strategies are actively managed in the Fund and performance was impacted by the largemovement upwards in shorter to medium term bond yields. The Fund held a modest longposition in the three-year part of the curve, which underperformed given the front end of thecurve bore much of the brunt of the sell-off, as future rate hikes by the RBA were broughtforward and priced in aggressively for this year. Whilst the peak in yields in this episode is hardto predict, we commenced adding to duration in the month where we felt market pricing haddeviated from our assessment of ‘fair value’ and offered a reasonable level of cushion shouldyields continue to climb in the near term. This detracted value in January, but should bear fruitover the coming period. Should yields climb further, all things being equal, we look to addfurther to this position.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/JanusHendersonAustralianFixedInterestFund_MonthlyReport-1.pdfOctober, 2021
Inflation fears led markets to ignore Reserve Bank of Australia (RBA) forward guidance and bring forward ‘lift-off’ in the cash rate to mid next year. Yields rose sharply across the government yield curve, with the largest moves at the shorter end of the curve. Rates volatility buffeted risk markets, which had earlier found support from improving Northern Hemisphere corporate earnings.
The Australian Q3 CPI release in late October showed that underlying measures of inflation ran at 2.1% over the past 12 months to September. This was the first time since 2015 that core inflation was back within the RBA’s 2-3% target band. Higher energy, timber, and durable goods prices were major contributors, with supply chain pressure evident as economies open up. This triggered outsized volatility in bond yields as the market began to speculate on aggressive and early tightening of RBA cash rates as soon as early 2022, very much in conflict with the RBA’s expectations of when wage growth would permit core inflation to be “sustainably” at 2.5% or higher. After the RBA’s November meeting, they are still of the opinion that this point may not be reached until late 2023 or early 2024. Despite this, markets moved to price in a 0.25% cash rate by May 2022 and a 1.25% cash rate by the end of 2022.
Three-year government bond yields ended the month 0.91% higher at 1.22%, which compared to the last 10 years, represents a 5.5 standard deviation rise in yields. Compared to three month money market yields, which remained below 0.1%, the yield advantage between these two points has not been this high since 2009. At this point, we believe there is some decent compensation for taking modest duration risk even in conservative strategies.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/JanusHendersonConservativeFixedInterestFund_MonthlyReport-2.pdfSeptember, 2021
Despite the Reserve Bank of Australia (RBA) Governor questioning the early timing amount of tightening priced into markets, markets are still pricing the first tightening by end 2022. Three year government bond yields traded in a 12 basis points (bps) range, falling on dovish RBA guidance, before ending the month 7bps higher at 0.31% as NSW and Victoria announced roadmaps out of lockdown Meanwhile, three-month bank bills ended the month 1bp higher at 2bps as money market rates remain very low. In a more challenging return environment the Australian bond market, as measured by the Bloomberg AusBond Composite 0+ Yr Index fell by 1.51% over September, while the floating rate credit market fell by 0.06% and equities indices were also down. The Janus Henderson Conservative Fixed Interest Fund (Fund) outperformed the Bloomberg AusBond Bank Bill Index (Benchmark) returning 0.04% (gross), while the Benchmark was flat. Over the past 12 months, the Fund has delivered an excess return of 1.07% (gross) above the Benchmark.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/JanusHendersonConservativeFixedInterestFund_MonthlyReport-1.pdfAugust, 2021
Short-term money market rates remained very low given the 0.10% official cash rate and the deterioration in the near-term growth outlook, and ample system liquidity. Three-month bank bills ended the month 1 basis point (bp) lower at 1bp, while six-month bank bills ended 3bps lower at 3bps. Further out, markets are still pricing the first tightening from late 2022/early 2023. Three-year government bond yields traded in a 14bps range on mixed economic data and evolving lockdowns, before ending the month largely unchanged at 0.24%.
The Janus Henderson Conservative Fixed Interest Fund (Fund) outperformed the Bloomberg AusBond Bank Bill Index (Benchmark) returning 0.03% (gross), while the Benchmark was flat. Over the past 12 months, the Fund has delivered an excess return of 1.12% (gross) above the Benchmark. Whilst high quality credit spreads are more muted today, we still see the excess return advantage for investors looking to retain liquidity and a low risk profile as valuable. Income advantage was the main contributor to excess return during August with spreads on floating rate credit largely unchanged on the month. Immediately post earnings releases, the major banks were active in the primary market. One notable transaction was NAB pricing the first AUD 5-year major bank senior unsecured bond issue since the pandemic began, at BBSW +41bps. NAB was also the last major bank to issue in January 2020 with a similar 5-year note with a higher spread of BBSW +77bps. The differential shows the efficacy of the Term Funding Facility in lowering the borrowing costs of banks through the pandemic. After a lengthy hiatus, the return of large banks to the wholesale term funding market should mark the gradual normalisation of spreads, and we anticipate higher levels of income should become available to investors as supply accelerates into 2022. With this in mind, the Fund chose not to participate in the NAB deal.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/JanusHendersonConservativeFixedInterestFund_MonthlyReport.pdfJuly, 2021
The Janus Henderson Australian Fixed Interest Fund (Fund) returned 1.90% (net) and 1.94% (gross). The Fund outperformed the Bloomberg AusBond Composite 0+ Yr Index (Benchmark) by 0.14% (net) in July, which rose 1.76% on the month, with the Benchmark now recouping all of the losses from the large drawdown in February. The Fund continues its outperformance, beating the Benchmark net of fees by 1.14% over the year, and 0.25% since inception per annum. This outperformance also demonstrates the very fruitful environment for active managers, in which a decent positive return can be delivered through active management of benchmark aware strategies. In this case, more than doubling the annual return of the bond market (as measured by the Bloomberg AusBond Composite 0+ Yr Index).
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/JanusHendersonAustralianFixedInterestFund_MonthlyReport.pdfDecember, 2020
Despite ongoing COVID-19 outbreaks, the commencement of vaccination programs and another round of fiscal easing in the United States helped buoy investor sentiment. Equity markets had another strong month, while credit markets remained firm. Expectations for a post-vaccine global rebound and burgeoning sovereign debt supply saw yield curves steepen and inflation expectations lift. Yields at the shorter end of the yield curve remained anchored as the Reserve Bank of Australia (RBA) reaffirmed its 0.10% cash and three-year government bond yield target. The three-year government bond drifted up to 0.14% before central bank action saw it end the month at 0.106%, in line with the target. Money market rates remained very low given high levels of deposits and ample market liquidity. Three-month bank bills ended the month 1bps lower at 0.01%, while six-month bank bills ended 0.5 basis points (bps) lower at 0.02%. After a strong year of performance in high quality bonds, December saw the rally take a breather.
The downgrade of both NSW and Victorian credit ratings to AA+ and AA respectively saw a very modest widening in semi government bond spreads. Whilst issuance is set to increase significantly to sustain budgeted deficits, RBA QE and decreases in the Committed Liquidity Facility (CLF) means the net increase in supply should be readily supported and we do not expect spreads to widen materially. Meanwhile bank floating rate note (FRN) spreads widened 4bps from very low levels on profit taking after a very strong year resulting in the Bloomberg Credit FRN Index generating a 0.00% return for December as income was offset by negative returns from spread widening.
Again, we see this market likely to be well supported into 2021 as the RBA Term Funding Facility remains available and maturities will see cash looking to be reinvested with minimal primary available from the major banks. The Janus Henderson Conservative Fixed Interest Fund – Institutional (Fund) outperformed the Bloomberg AusBond Bank Bill Index (Benchmark) returning 0.08% (gross), while the Benchmark was flat. Over the year to 31 December 2020, the Fund returned 2.61% (gross), which is 2.24% above the Benchmark in a volatile year where active management was able to add a lot of value.
The Fund outperformance was generated through positive return contributions from income advantage above bank bills, bolstered with capital gains from security selection in corporate credit and Tier 2 bank notes, as well as a positive contribution from inflation-linked securities as market pricing of inflation expectations rose quickly.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/JanusHendersonConservativeFixedInterestFund-Institutional_MonthlyReport.pdfticker: IOF0047AU
release_schedule: Monthly
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asset_class: Fixed Income
asset_category: Australian Short Term Fixed Interest
peer_benchmark: Fixed Income - Australian Short Term Index
broad_market_index: Australian Bond Bank 0+Y Index
structure: Managed Fund
fund_features:
Janus Henderson Conservative Fixed Interest seeks to achieve a total return before fees that exceeds the total return of the benchmark by 0.5% p.a., over rolling three-year periods. The fund invests substantially all of its assets in the underlying fund and may also hold cash. Under normal circumstances, the underlying fund will invest in a portfolio of cash, fixed and floating interest rate securities including bank securities, asset backed securities and corporate securities.
- Manager Address : Level 36, Grosvenor Place 225 George Street Sydney NSW 2000
- Phone : +61 (0)2 8298 4000
- Website : https://www.janushenderson.com/en-au/investor/
- Contact Email : matt.gaden@janushenderson.com
- Contact Page : https://www.janushenderson.com/en-au/investor/contact-us-2/#