September, 2023
The Yarra Enhanced Income Fund returned 2.58% (net basis, including franking) over the quarter, outperforming its benchmark by 156 bps. On a 12-month view the Fund returned 7.18%, outperforming the RBA Cash Rate by 367 bps (net basis, including franking).
Carry continues to underpin positive Fund performance and is providing strong downside protection in volatile markets. As spreads tightened during the quarter, we have seen particularly strong performance from offshore issuers. The strongest performance came from banking and diversified financial securities.
Primary market volumes picked up during the period and presented some attractive opportunities to capture elevated levels of outright yield. We continue to actively trade to position for the best possible risk-adjusted returns, and this quarter took part in the Lloyds bank deal and later the WestConnex finance deal.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Enhanced-Income-Fund-Sept-2023.pdfAugust, 2023
The Yarra Enhanced Income Fund returned 0.96% (net basis, including franking) over the month, outperforming its benchmark by 61 bps. On a 12-month view the Fund has returned 7.04%, outperforming the RBA Cash Rate by 367 bps (net basis, including franking).
Spread tightening contributed significantly to performance for the month of August. Tier 2 and senior spreads were particularly strong, helped along by high demand for credit and hybrids. Adding further to positive monthly performance was the continuation of substantial running yield.
New deal flow began to pick up during August and has continued to gain momentum late in the month. We took part in the Lloyd’s Bank Tier 2 deal which was trading more akin to domestic Tier 1. Other issuances we have seen has been well supported by the market, with elevated yields and equity market volatility clearly attracting flow into the sector. We remain active in both the primary and secondary markets as we seek to capture attractive spreads across the market.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Enhanced-Income-Fund-Aug-2023-.pdfJuly, 2023
The Yarra Enhanced Income Fund returned 1.43% (net basis, including franking) over the month, outperforming its benchmark by 109 bps. On a 12-month view the Fund has returned 6.63%, outperforming the RBA Cash Rate by 346 bps (net basis, including franking).
Broad-based spread widening, coupled with significant carry, underpinned strong performance through July. Tier 2 spreads were particularly strong through the month, contributing significantly to outperformance. We have long held a preference for Tier 2 over Tier 1, given the relative trading level.
New deal flow began to ease as the August reporting season neared. The issuance we did see was well supported by the market, with elevated yields clearly attracting flow into the sector. We remain active in both the primary and secondary markets as we seek to capture attractive spreads across the market.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Enhanced-Income-Fund-Jul-2023.pdfJune, 2023
The Yarra Enhanced Income Fund returned 0.43% (net basis, including franking) over the quarter, underperforming its benchmark by 51 bps. On a 12-month view the Fund returned 5.46%, outperforming the RBA Cash Rate by 254 bps (net basis, including franking).
Strong carry once again added significantly to performance, outweighing wider spreads and selling of duration. Tier 1 securities were among the top performers during the quarter, with significant alpha generated from selective Tier 1 positions we added in the aftermath of the Credit Suisse collapse.
Outright yields in the Fund are becoming difficult to ignore. We are seeing strong investment grade credit at yields not seen in many years. We continue to make the most of this period, adding to positions where we see the best available riskadjusted returns.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Enhanced-Income-Fund-Jun-2023.pdfMay, 2023
The Yarra Enhanced Income Fund returned -0.20% (net basis) over the month, underperforming its benchmark by 52 bps. On a 12-month view the Fund has returned 5.02%, outperforming the RBA Cash Rate by 237 bps (net basis, including franking).
May performance was impacted by both widening credit spreads and a sell-off in duration. Strong levels of carry offset some of the impact, but was insufficient to push performance into positive territory. Our position in bank bill futures detracted from performance most significantly over the period. The Fund benefitted from its limited exposure to Tier 1 securities which were weak over the period.
A steady flow of new issuance made its way to market over the period. Among the new deals was a Tier 2 offer from Judo Bank which the Fund participated in. At a spread of 500 bps the deal looked compelling, with our thesis underpinned by Judo’s strong capital position. New deals were generally well supported and we expect a steady flow to continue over the next few months.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Enhanced-Income-Fund-May-2023.pdfApril, 2023
The Yarra Enhanced Income Fund returned 0.53% (net basis) over the month, outperforming its benchmark by 24 bps. On a 12-month view the Fund has returned 4.81%, outperforming the RBA Cash Rate by 246 bps (net basis, including franking).
Performance in April was largely attributable to strong carry, with high levels of income likely to be a theme throughout 2023. At these levels, the Fund’s running yield is sufficient to offset significant widening of spreads should that occur.
Spreads during the month did contract modestly, particularly among Tier 2 securities which we continue to view favorably. On the new issuance front, the Fund participated in a new deal from Worley. Worley holds a strong position in the engineering and construction industry and are well diversified operationally, with very limited customer concentration risk. At a spread of 250 bps the deal appeared fairly priced. We continue to be active buyers of credit in the current climate.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Enhanced-Income-Fund-Apr-2023.pdfMarch, 2023
The Yarra Enhanced Income Fund returned 2.62% (net basis, including franking) over the quarter, outperforming its benchmark by 181 bps. On a 12-month view the Fund returned 3.71%, outperforming the RBA Cash Rate by 165 bps (net basis, including franking).
Strong carry continues to be a meaningful contributor to performance, adding, in our view, significant downside protection should we see any weakness in spreads. The Fund’s long position in Bank Bill Futures also created considerable alpha. We have a long held these positions in the expectation the RBA would not be able to raise rates as high as the market is pricing.
The ongoing absence of new issuance, coupled with a modest risk rally helped push corporate credit and hybrid spreads tighter. We continue to see value in the market with spreads and outright yields at current levels.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Enhanced-Income-Fund-Mar-2023.pdfFebruary, 2023
The Yarra Enhanced Income Fund returned 0.20% (net basis) over the month, underperforming its benchmark by 4 bps. On a 12-month view the Fund has returned 2.39%, outperforming the RBA Cash Rate by 61 bps (net basis, including franking).
Positive performance in February was attributable to modest tightening in spreads and substantial carry, led by our exposure to Tier 2 which continues to outperform Tier 1 following weak relative performance in 2022. During the period we participated in a new Tier 1 deal from ANZ, launched at an attractive new issuance premium and pricing that we expect will converge toward secondary Tier 1 market levels.
We still see compelling value on offer across much of the corporate credit and hybrid market, reflecting elevated outright yields and strong downside protection.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Enhanced-Income-Fund-Feb-2023.pdfJanuary, 2023
The Yarra Enhanced Income Fund returned 1.46% (net basis) over the month, outperforming its benchmark by 122 bps. On a 12-month view the Fund has returned 1.83%, outperforming the RBA Cash Rate by 45 bps (net basis, including franking).
Performance in January was driven by high carry the Fund is generating, tighter credit spreads and the fall in interest rates across the yield curve. While the Fund did not participate in new issuance, we were active in the secondary market. Strong retail investor buying of bank hybrids enabled us to rotate up the bank capital structure into securities offering better risk adjusted returns. We still see compelling value on offer across much of the corporate credit and hybrid market reflecting elevated outright yields and strong downside protection.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Enhanced-Income-Fund-Jan-2023.pdfDecember, 2022
The Yarra Enhanced Income Fund returned 1.39% (net basis, including franking) over the quarter, outperforming its benchmark by 68 bps. On a 12-month view the Fund returned 0.47%, underperforming the RBA Cash Rate by 80 bps (net basis, including franking).
Carry was a strong contributor to performance over the quarter. At these levels, carry is providing substantial downside protection. We expect this will continue to underpin strong performance through 2023.
The ongoing absence of new issuance, coupled with a modest risk rally, helped push corporate credit and hybrid spreads tighter. We continue to see value in the market, with spreads and outright yields at attractive levels.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Enhanced-Income-Fund-Dec-2022.pdfNovember, 2022
The Yarra Enhanced Income Fund returned 1.00% (net basis) over the month, outperforming its benchmark by 77 bps. On a 12-month view the Fund has returned 0.33%, underperforming the RBA Cash Rate by 69 bps (net basis, including franking).
A combination of strong levels of carry and tighter spreads drove strong performance during the month. Credit continues to look attractive at these levels and we remain active buyers. Strong carry will likely underpin positive performance into 2023.
New issuance was again largely absent from the market. It seems likely corporate issuance will remain quiet until the New Year, as the market slows down over the Christmas period.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Enhanced-Income-Fund-Nov-2022.pdfSeptember, 2022
The Yarra Enhanced Income Fund returned 0.92% (net basis, including franking) over the quarter, outperforming its benchmark by 53 bps. On a 12-month view the Fund returned -0.09%, underperforming the RBA Cash Rate by 54 bps (net basis, including franking).
The absence of corporate issuance was again a feature of the period, as elevated volatility and perceptions of market demand further subdued potential issuers. Among the limited new issuances was Challenger Life’s Tier 2, which offered strong pick up over major bank Tier 2 and proving attractive on a relative value basis.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Enhanced-Income-Fund-Sept-2022.pdfAugust, 2022
The Yarra Enhanced Income Fund returned 0.57% (net basis) over the month, outperforming its benchmark by 42 bps. Performance in August was driven by strong running yield and modestly tighter spreads. We expect strong running yield to underpin positive returns into the year end.
New primary was again quiet. Among the limited new deals was a Tier 2 issuance from MyState. The deal launched at 550 bps which was attractive on a risk-adjusted basis.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Enhanced-Income-Fund-Aug-2022.pdfJuly, 2022
The Yarra Enhanced Income Fund returned 0.32% (net basis) over the month, outperforming its RBA Cash Rate benchmark by 22 bps.
Performance in July was driven by strong running yield, with spreads remaining at elevated levels and continuing to offer value.
A highlight among the limited number of new deals was a Tier 2 security from NAB. The deal launched at a spread of 280 bps, offering strong pick-up over senior and attractive value relative to Tier 1. The spread between Tier 1 and Tier 2 securities appears very tight, and as such we view Tier 2 more favorably at this point in time.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Enhanced-Income-Fund-Jul-2022.pdfJune, 2022
The Yarra Enhanced Income Fund returned -1.24% (net basis, including franking) over the quarter, underperforming its benchmark by 133 bps. On a 12-month view the Fund returned -0.88%, underperforming the RBA Cash Rate by 105 bps (net basis, including franking).
Issuance remained relatively subdued through the June quarter, with corporates seemingly inclined to wait out market volatility prior to coming to market with any new deals. There were a few new Tier 1 deals issued by the major banks; these were progressively marked at wider levels, with the latest deal from Westpac pricing at 340 bps. Widening spreads and attractive underlying yield continue to underpin strong riskreturn dynamics of the Fund.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Enhanced-Income-Fund-Jun-2022.pdfMay, 2022
The Yarra Enhanced Income Fund returned -0.40% (net basis) over the month, underperforming its benchmark by 43 bps. Performance in May was again impacted by broader market risk-off sentiment, though the move wider in spreads adds to the compelling opportunity within the sector, in our view, particularly as corporate strength remains robust.
A number of new deals launched during the period, including an issuance of senior debt from Air New Zealand. The airline maintains a very strong domestic market position and, importantly, is majority owned by the NZ government. At an outright yield of ~6.5% the deal was very attractive.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Enhanced-Income-Fund-May-2022.pdfApril, 2022
Yarra Enhanced Income Fund returned -0.52% (net basis) over the month, underperforming its benchmark by 53 bps. On a 12- month view the Fund has returned 0.88%, outperforming the RBA Cash Rate by 78 bps (net basis, including franking).
Performance was again impacted by broader market risk-off sentiment. The move wider in spreads and increase in underlying yields is creating several attractive opportunities.
The new issuance market remained relatively subdued. The Fund participated in one new deal in the period. The deal – a Tier 2 security from CBA which – was very attractive relative to where the Tier 1 market is trading.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Enhanced-Income-Fund-Apr-2022.pdfMarch, 2022
The Yarra Enhanced Income Fund returned -0.60% (net basis, including franking) over the quarter, underperforming its benchmark by 62 bps. On a 12-month view the Fund returned 1.99%, outperforming the RBA Cash Rate by 189 bps (net basis, including franking).
It was relatively quiet on the new issuance front until late in the quarter, although the Fund participated in a number of new deals at attractive levels of outright yield following the significant selling of sovereign bonds.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Enhanced-Income-Fund-Mar-2022.pdfFebruary, 2022
Yarra Enhanced Income Fund returned -0.19% (net basis) over the month, underperforming its benchmark by 20 bps. On a 12- month view the Fund has returned 3.04%, outperforming the RBA Cash Rate by 294 bps (net basis, including franking). Performance was again impacted by broader market risk-off sentiment. Leading into this period valuations were looking full and are now beginning to present more value.
It was another relatively quiet month on the new issuance front. The Fund participated in a new Tier 1 deal issued by ANZ which was attractive, pricing at a spread of 270 bps. Beyond that, we remain active in the secondary market to further optimize our positioning.
Both economic and geopolitical conditions remain uncertain. Inflationary pressure appears unrelenting and will soon force the hand of policy makers in our view. In this environment we continue to find pockets of the market where we can find exposure to attractive risk weighted opportunities. We expect the first move in rates to come late in 2022, later than the market is currently pricing. It is likely the RBA will wait to ensure both inflation and wages growth are comfortably within or above their target range before they elect to move. We remain positioned to benefit from this thesis coming to fruition. Timing aside, it is likely that strong household liquidity and robust labour market conditions will ensure the domestic economy remains robust as we enter the hiking cycle.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Enhanced-Income-Fund-Feb-2022.pdfJanuary, 2022
Yarra Enhanced Income Fund returned -0.03% (net basis) over the month, underperforming its benchmark by 4 bps, reflecting broad based risk-off market sentiment. On a 12-month view the Fund has returned 4.43%, outperforming the RBA Cash Rate by 433 bps (net basis, including franking). There were few new deals issued during the month. The Fund remains active on the secondary market seeking to optimize the risk adjusted returns.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Enhanced-Income-Fund-Jan-2022.pdfDecember, 2021
The Yarra Enhanced Income Fund returned 0.93% (net basis, including franking) over the quarter, outperforming its benchmark by 91 bps. On a 12-month view the Fund returned 5.19%, outperforming the RBA Cash Rate by 509 bps (net basis, including franking). A steady flow of new issuance made its way to market over the quarter. We continue to see attractive opportunities in high quality names at the long-end where the steep yield curve provides significant levels of yield relative to cash.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Enhanced-Income-Fund-Dec-2021.pdfNovember, 2021
The Yarra Enhanced Income Fund returned 0.39% (net basis) over the month, outperforming its benchmark by 39 bps. On a 12-month view the Fund has returned 5.86%, outperforming the RBA Cash Rate by 576 bps (net basis, including franking). There was a significant flow of new deals over the month, several of which the Fund elected to participate in. The Melbourne Airport deal presented a very attractive opportunity; given the current environment the spread was attractive relative to similar rated peers, and the overall yield on the deal was substantial at ~3.7%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Enhanced-Income-Fund-Nov-2021.pdfOctober, 2021
Yarra Enhanced Income Fund returned 0.33% (net basis) over the month, outperforming its benchmark by 33 bps. On a 12- month view the Fund has returned 6.24%, outperforming the RBA Cash Rate by 614 bps (net basis, including franking). It was a quiet month on the new issuance front following a busy September. The Fund did not participate in any new deals, though we continue to actively trade in the secondary market.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Enhanced-Income-Fund-Oct-2021.pdfSeptember, 2021
The Yarra Enhanced Income Fund returned 0.03% (net basis, including franking) over the quarter, matching the performance of the RBA Cash Rate. On a 12-month view the Fund returned 6.75%, outperforming by 663 bps on a net basis (including franking).
A flurry of new deals came to market through the quarter, as corporates sought to lock in record low rates. Among the new deals the Fund participated in was Qantas’ new senior offering. The deal priced significantly wider than similarly rated corporates due to ongoing challenges faced by the aviation sector, with the steep yield curve and likely rebound in sector activity presenting an attractive risk-adjusted return.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Enhanced-Income-Fund-Sep-2021.pdfAugust, 2021
Yarra Enhanced Income Fund returned 0.13% (net basis) over the month, outperforming its benchmark by 12 bps. On a 12- month view the Fund has returned 6.70%, outperforming the RBA Cash Rate by 658 bps (net basis, including franking). New issuance returned to the market following a muted spell in the lead up to reporting season. The Fund participated in a number of new deals including Pacific National’s new Senior issue. The deal presented an attractive opportunity to take advantage of the steepness of the yield curve in a quality, investment grade name
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Enhanced-Income-Fund-Aug-2021.pdfJune, 2021
The Yarra Enhanced Income Fund returned 1.63% (net basis, including franking) over the quarter, outperforming the RBA Cash Rate by 160 bps. On a 12-month view the Fund returned 8.15%, outperforming by 800 bps. The Fund remained active during the period, trading in both the primary and secondary markets in order to position for the most positive risk-adjusted returns. The Fund’s bias towards old-style Basel 2 securities paid off once again, with Suncorp announcing its intentions to call the SBKHB securities.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Enhanced-Income-Fund-Jun-2021.pdfMay, 2021
Yarra Enhanced Income Fund returned 0.64% (net basis) over the month, outperforming its benchmark by 64 bps. On a 12- month view the Portfolio returned 9.02%, outperforming the RBA Cash Rate by 886 bps (net basis, including franking). During the month Suncorp announced they would be calling their old-style, Basel 2 SBKHB securities. Our bias towards these securities has once again paid off; the SBKHB contributed in excess of 100 bps to the Fund’s 12-month return as at 31 May.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Enhanced-Income-Fund-May-2021.pdfApril, 2021
Yarra Enhanced Income Fund returned 0.58% (net basis) over the month, outperforming its benchmark by 57 bps. On a 12- month view the Portfolio returned 8.90%, outperforming the RBA Cash Rate by 872 bps (net basis, including franking). The Fund did not participate in any new deals over the month, although continued to actively trade in secondary markets.
Market bulls benefitted from ongoing strength in risk-assets, even in the face of rapid growth in COVID-19 infections in some parts of the globe. The growth in new cases was focused in India, where new cases exceeded 350k/day as the month drew to a close. The picture was vastly different among dismissed by the RBA, stating they would continue to monitor trends in housing borrowing and ensure lending standards are maintained.
Pressure will continue to mount on Australia’s central bank as house prices climb, particularly at the current pace, up 2.8% (m/m) in March (Corelogic House Price Index). Other domestic economic data remained strong; ANZ job ads hit a 12-year high, up 7.4% in March (m/m), while preliminary retail sales climbed 1.4% (m/m), comfortably beating consensus expectations (+1.0%).
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Enhanced-Income-Fund-Apr-2021.pdfDecember, 2020
Yarra Enhanced Income Fund returned 2.43% (net basis) over the quarter, outperforming its benchmark by 239 bps. On a 12- month view the Portfolio returned 1.00%, outperforming the RBA Cash Rate by 68 bps (net basis, including franking). Significant issuance in the quarter presented a number of investment opportunities for the Fund. These deals were predominately concentrated in the financials space.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/Yarra-Enhanced-Income-Fund-Dec-2020.pdfasset_class: Fixed Income
asset_category: Multi-Strategy Income
peer_benchmark: Fixed Income - Multi-Strat Income Index
broad_market_index: Global Aggregate Hdg Index
manager_contact_details: Array
ticker: JBW0018AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
fund_features:
Yarra Enhanced Income Fund aims to earn higher returns than traditional cash management and fixed income investments (over the medium-to-long term) through exposure to a diversified portfolio of hybrid (debt/equity) and fixed income securities. The Fund is expected to produce less volatile returns than are inherent in equity markets, while offering modest capital growth and some franking credits. The approach is research-driven, utilizing the comprehensive research process of the Yarra Capital Management Group and taking into account the broad economic and market environment as well as specific investments details.
structure: Managed Fund