June, 2023
The Portfolio outperformed the benchmark in Q2, driven by security selection and sector rotation.
Sector rotation
The Portfolio increased its long semi-government exposure over the quarter, however this was largely a function of rebalancing after large cash inflows in the prior quarter. The exposure remains hedged with swap given the risk to spread products that emerged post the US regional banking crisis. Semi-governments broadly narrowed versus bonds over the quarter, however they widened versus swap, unable to keep pace with the relentless tightening in swap spreads over the quarter. Despite the tailwind to the sector from Bank high quality liquid assets demand being well past its peak as the Term Funding Facility maturities ramp up, the continued reduction in AOFM issuance should see the semi-government sector retain some high quality liquid assets bid.
The Portfolio’s neutral credit positioning performed broadly in line with the benchmark over the quarter.
Security selection
The Portfolio remains overweight futures vs physical securities, held in both the short and intermediate sector. The physical Australian Commonwealth Government Bonds (ACGBs) remain ‘rich’ to the overnight index swap curve, particularly in the front end and belly of the curve. Within ACGBs, we continue to hold our exposure in the back end of the curve where bonds offer more value vs overnight index swap and futures. Within semi-government, exposure is concentrated in the 7-10-year part of the curve. We remain underweight Treasury Corporation of Victoria and overweight Queensland Treasury Corporation and New South Wales Treasury Corporation, for relative value considerations.
The Portfolio’s credit security selection outperformed over the quarter. Most credit sectors moved tighter, with stable to tighter spreads for major bank senior bonds allowing higher beta Tier 2 and corporates to outperform. The Portfolio added exposures in the long-end of the curve, with a range of utility issuers coming to the market in Q2. Structured securities continue to provide excess returns, finishing with an especially strong month in June as AAA spreads moved 10bps tighter across the board. Higher than benchmark carry also assisted Portfolio performance.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/Macquarie-Master-Enhanced-Fixed-Interest-Fund-Quarterly-Report-PRRP-MMEFIF-ANZ-5.pdfDecember, 2022
The Portfolio outperformed the benchmark this quarter, driven by sector rotation.
Sector rotation
The Fund’s exposure to semi-government finished unchanged for the December quarter, sitting modestly long. The exposure was actively traded throughout the quarter, initially moving closer to neutral as semi-governments outperformed swap as swap spreads widened. We increased exposure in November as swap spreads peaked and began retracing whilst semi-government lagged this move. Whilst the state governments have large issuance tasks, we continue to believe the semi-government sector offers value given this is largely reflected in the price. They are well progressed through the issuance and bank balance sheets should have high-quality liquid assets requirements in 2023 given the expiry of Term Funding Facility and Committed Liquidity Facility.
The Portfolio’s neutral credit positioning performed broadly in line with the benchmark over the quarter.
Security selection
The Portfolio is overweight derivatives versus physical securities both in swap and futures, held in the 10-year part of the curve. Physical Australian Commonwealth Government Bonds (ACGB) remain ‘rich’ to the overnight index swap (OIS) curve, particularly in the front end and belly of the curve. Within ACGBs, we continue to hold our exposure in the back end of the curve where bonds offer more value versus OIS and futures. Within semi-government, we closed our underweight to Treasury Corporation of Victoria given considerable progression in their funding task, and spreads have widened to accommodate their irregular issuance pattern. We prefer to be overweight Queensland Treasury Corporation given conservative coal price assumptions provide a tailwind to revenues, with a lower AUD also working in their favour. We are also overweight New South Wales Treasury Corporation given funding task is largely priced into spreads. We moved to underweight Western Australia Treasury Corporation given a deteriorating outlook for iron ore, with conservative price forecasts for the commodity already reflected in spreads. In addition, we deployed some excess cash backing derivatives into Japanese treasury bills over the quarter, fully hedged back to AUD for a favourable yield pick up to the Bank Bill Swap Rate.
September, 2022
The Portfolio outperformed the benchmark this quarter, driven by sector rotation and security selection.
Sector rotation The Portfolio increased its overweight to the semi-government sector over the quarter given the attractive excess yield on offer versus Australian Commonwealth Government Bonds. Our exposure is concentrated in the 10 year part of the yield curve given the steepness of curve spreads, and recent swap spread widening allowed an attractive entry point. The State Governments have had significant funding tasks, with significant supply still to come and the FY23 funding programs totalling $A75 bn, with New South Wales Treasury Corporation and Treasury Corporation of Victoria making up the lion’s share of supply. The outlook is more balanced going forward however and we are cognisant that balance sheets have large high quality liquid assets requirements and will take down a significant proportion of this.
The Portfolio’s credit positioning performed broadly in line with the benchmark as credit spreads retraced their June wides.
Security selection The Portfolio is overweight derivatives versus physical securities both in swap and futures, held in the 10 year part of the yield curve. The physical Australian Commonwealth Government Bonds (ACGBs) remain ‘rich’ to the overnight index swap curve, though this spread improved somewhat toward the end of the quarter. The market has increasingly become concerned about recessionary fears as leading indicators, particularly in North America and Europe continue to indicate a slowdown in economic growth, and started to price cuts starting early next year with US 2 year/10 year inverting early in July. We undertook micro extensions from the belly out to the 10 year part of the curve.
Within ACGBs we reduced our underweight to the ultra-long maturities, given there continues to be demand in the back end of the curve. Within semi-government we have further reduced our allocation to Treasury Corporation of Victoria, shifting into New South Wales Treasury Corporation and Queensland Treasury Corporation, as Treasury Corporation of Victoria no longer trades at an excess yield over other States and they continue to issue regularly via reverse inquiry which may limit price tension going forward.
In addition, we have deployed some excess cash backing futures into JPY bills fully hedged back to AUD for a favourable yield pickup as opportunities in the cross currency basis start to return post-pandemic.
The Portfolio’s credit security selection outperformed over the quarter. While financial subordinated debt initially moved wider in July, issuance in early August was the catalyst for a significant spread rally. Senior financial paper also contributed to returns, in particular new issuance that came to market with generous concessions. Residential mortgage-backed security (RMBS) spreads stabilised over the quarter, and provided attractive carry for the Portfolio. Higher than benchmark carry was also a contributor to the outperformance.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/Macquarie-Master-Enhanced-Fixed-Interest-Fund-Quarterly-Report-PRRP-MMEFIF-ANZ-3.pdfJune, 2022
The Portfolio began the quarter with an underweight position to the semi sector. However, as the quarter progressed spreads widened materially given the sharp move in swap spreads, which has left semi-governments at multi-year wides to Australian Commonwealth Government Bonds. The Portfolio has gradually increased its exposure to semi-government bonds as levels became more attractive over the quarter. The outlook is more balanced going forward; while supply is expected to remain elevated, the balance sheets have large high quality liquid asset requirements and are expected to continue taking down a significant proportion of issuance. Moves in semi-government bonds going forward will likely continue to be dictated by swap, with asset swap spread levels needing to remain sufficiently attractive for the balance sheets to buy.
The Portfolio’s credit positioning performed broadly in line with the benchmark despite the widening in investment grade credit spreads over the quarter.
The Portfolio is overweight derivatives versus physical securities both in swap and futures. We expected physical security valuations to revert back to trading ‘cheap’ to futures as net supply increases following the end of the Reserve Bank of Australia’s quantitative easing, but collateral shortages remain in the front-end and physical securities have continued to trade ‘rich’ to futures for longer than we expected. We have sold expensive 3 year basket bonds back into the equivalent futures maturity and taken micro relative value opportunities in semigovernment securities as volatility in markets increased the incidence of mispricings on the curve.
Within Australian Commonwealth Government Bonds, we went underweight to the ultra-long end following the persistent flattening in the curve, with the 10s30s curve virtually flat and the 20s30s curve inverted. The Australian ultra-long maturity bonds no longer look attractive relative to offshore, and the Australian Office of Financial Management (AOFM) has issued regularly into any demand in the 30 year bond and extend out the maturity curve which we think limits scope for further performance. At their recent update, the AOFM ditched plans to issue a new 20 year bond due to lack of demand, but flagged the possibility of a new 30 year to extend out the curve, demand permitting.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/Macquarie-Master-Enhanced-Fixed-Interest-Fund-Quarterly-Report-PRRP-MMEFIF-ANZ-2.pdfMarch, 2022
The Portfolio outperformed the benchmark this quarter, driven by security selection.
Security selection
The Portfolio’s security selection was actively managed as the overweight to ultra-long Australian Commonwealth Government Bonds was unwound following the flattening, with the tapering of quantitative easing (QE), together with the lack of 20 year syndication from the Australian Office of Financial Management (AOFM), contributing to the outperformance in recent months.
Within semi-government securities, we have trimmed some of the short-maturity exposures where semi-government spreads are particularly rich, and added in the 10 year maturity segment where yield curves are already steep as markets anticipate in more issuance supply. The Portfolio has also taken micro relative value opportunities in semi-government securities during the quarter given the flattening of the basket. The Portfolio has been positioned overweight derivatives versus physical securities both in swap and futures. We expect derivatives should also outperform physical securities now that the RBA has finished their asset purchasing program, with supply from the AOFM also likely to increase next financial year.
The Portfolio’s credit security selection performed broadly in line with the benchmark. Higher-beta corporate bonds and subordinated financial paper have widened more aggressively in the selloff, as continued rate volatility and the Ukrainian invasion sparked a global risk-off move. Residential mortgage-backed security (RMBS) spreads also moved wider in Q1 as new deals in the primary market continued to print wider than secondary levels, while short-dated credit was impacted by new issuance. The Portfolio continued to benefit from the higher-thanbenchmark carry over the quarter.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/Macquarie-Master-Enhanced-Fixed-Interest-Fund-Quarterly-Report-PRRP-MMEFIF-ANZ-1.pdfMarch, 2021
The first quarter of 2021 was dominated by two evolving themes: the rollout of vaccinations and the delivery of further US fiscal stimulus. The two themes combined to provoke an upward revision to global growth expectations for 2021, even though the details reveal a very divergent path to recovery across regions and sectors. Asset markets embraced these themes, with equities pushing to new highs while credit spreads tightened. Bond yields surged higher, led by the US and Australia but with some marked divergence where the macro news was less positive, such as Europe, which had a more muted rise in yields through the quarter.
The rollout of vaccinations is highly dependent on supply. The UK and the US have led the way amongst developed countries, whereas supply problems have significantly hindered the rollout across Europe and, across emerging countries, the picture is even more divergent. For the US, early in the quarter the Democratic party secured both the Georgia Senate seats and this gave them control of Congress, albeit on the slenderest of margins in the Senate – relying on the casting vote of the Vice President. However, this was enough for the Democrats to successfully pass another large fiscal stimulus package in March, including a substantial cash payment to qualifying households. With vaccination progress enabling a gradual re-opening and fiscal stimulus taking place, financial markets quickly embraced this positive news even though the economic fundamentals only began to improve through March.
Central banks have maintained a cautious stance despite the emergence of positive news on vaccines and fiscal stimulus, with the US Federal Reserve stating that that the activity gap created by the pandemic is large and will take some time to close when many of the inflationary pressures are most likely temporary. This consistent theme around developed countries has caused yield curves to steepen, as short-end rates remain strongly supported by the prospect of steady policy for some time to come. The Fund outperformed the benchmark this quarter, driven by security selection.
File: https://commentary.quantreports.net/wp-content/uploads/2021/04/Macquarie-Master-Enhanced-Fixed-Interest-Fund-Quarterly-Report-PRRP-MMEFIF-ANZ.pdfasset_class:
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ticker: MAQ0180AU
release_schedule: Quarterly
structure: Managed Fund
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Macquarie Master Enhanced Fixed Interest aims to outperform the UBS Composite Bond Index (Index) over the medium term (before fees) by using a low risk enhancement strategy. The Fund invests solely in the Macquarie Enhanced Australian Fixed Interest Fund, which in turn invests in a diversified portfolio of predominantly Australian fixed interest securities including securities issued by Government or corporate entities, as well as Asset Backed Securities.