September, 2023
Fund duration was relatively stable in September at around 5.5 years. Our medium-term view is to add duration as yields rise though we did not take advantage of the recent rise for a number of reasons. Firstly, the relaxation of fiscal policy this year has led to a significant increase in bond supply, and we feel that this is in the process of being priced into the market. Further the US Federal Reserve (Fed) has guided markets to move away from potential easing of policy in 2024 and the data has mostly supported this. One of the reasons why bond markets performed earlier this year while the Fed was still hiking was that rate cuts were being priced into the market for 2024. These cuts are in the process of being unwound which has led to higher yields at the end of a policy rate hiking cycle – which is unusual.
The Fund made some changes to its geographical allocations. Gilts have recently performed very strongly against peers as better than expected inflation data is likely to lead to fewer Bank of England rate hike. This saw the Fund move gilt exposure back into European duration. The Fund also added to long end Japanese exposure given the high yields on offer on a hedged basis. Our holdings of Canadian securities performed well against US Treasuries and the Fund shifted those back into US Treasuries on a valuation’s basis. The Fund continues to hold most duration in short to intermediate sections of the yield curve and the Fund has benefited from recent yield curve steepening.
The Fund’s credit positions contributed to outperformance over the benchmark for September. Positive contributions were spread amongst sectors, reflecting positive security selection in investment grade (IG), mortgage-backed securities, and a small contribution from the modest high yield (HY) position. Key individual contributors included credit hedges (as volatility began to increase late in the month), and selected mortgage and asset backed securities. The Fund made small changes to credit exposure over the month, reducing some remaining higher beta credits after very strong performance. This included trimming transport-related exposures in Europe, such as Heathrow airport and Abertis, a toll road operator – with spreads fully reflecting the more positive outlook and not compensating for the risk of volatility, in our view. The Fund added lower beta sectors such as utilities and healthcare in place of the sales. We continue to expect opportunities to add to credit positions over time – particularly as we see spreads as relatively tight, against a backdrop of high economic uncertainty and increasing volatility in the underlying bond market.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/205360662.pdfAugust, 2023
The Fund added around 40bps of duration in August. The rise in the long end of the Japanese yield curve made for good entry levels to add exposure in our view, particularly when considering this translates to around 7% on a currency hedged basis. The Fund also used the back up in bond yields to add some Australian and European duration as those central banks are close to finishing their policy tightening cycles. The Funds duration holding of 5.7 years is relatively high, compared to recent history, with yields now in some markets at decade highs and most of the policy tightening behind us. The Funds exposure remains to US Treasuries with a bias to holding short to medium tenor securities given how flat yield curves are in most developed market sovereign bond markets.
The Fund’s credit positions contributed to outperformance over the benchmark for August. Positive contributions from investment grade were the main contributor, via security selection in BBB issuers. This was somewhat offset by security selection in emerging markets. Mortgage-backed securities (both US Agency MBS, but particularly Australian Residential Mortgage-Backed Securities (RMBS) were positive contributors, reflecting ongoing stable excess running yield on these securities. Emerging markets detracted, reflecting underperformance of small holdings of African sovereign issuers.
The Fund made small changes to credit exposure over the month, favouring further additions to Agency mortgage securities as historically wide spreads due to volatile rates markets, remain attractive. The Fund trimmed exposure to selected higher beta issuers that had performed strongly (such as International Consolidated Airlines) and added to mid-curve Australian corporates and selected new US issuance, where we see specific opportunities. The Fund also participated in new Australian RMBS issuance during the month, viewing spreads there as an attractive long-term source of carry. We continue to expect opportunities to add to credit positions over time - but at higher spread levels, given the likelihood of economic weakness in the medium term.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/204370910.pdfJuly, 2023
The Fund covered some of its underweight Japanese govt bond position after the Bank of Japan announced some changes to its Yield Curve Control policy. Overall interest rate risk remained reasonably steady as duration was trimmed in core holdings such as US Treasuries and Australian government bonds. The Fund added to yield curve steepening positions over the month as the global central bank tightening policy reaches its latter stages.
The Fund’s credit positions contributed to performance versus the benchmark for July. Amongst credit sectors, security selection within investment grade was a key contributor, as were emerging markets holdings due to tighter spreads in all risk markets. Amongst individual issuers, Australian and global financials were amongst the largest contributors (Morgan Stanley, Westpac and NAB, amongst others), as the global banking sector rebounded strongly after lagging for several months. Amongst underperformers, AT&T modestly detracted, as reports of lead sheathing on some of the company’s legacy wireline network added uncertainty to the picture – we remain very comfortable with the long-term fundamentals of the issuer.
The Fund made small changes to credit exposure over the month, adding modestly to global issuers to maintain yield in an ongoing uncertain environment. The Fund further added to Agency MBS securities, with spreads on these sectors remaining at the upper end of historical ranges, which continue to offer attractive yields with very strong fundamental credit quality. The Fund also added credit downside protection via options, which we believe provides low-cost and positive-asymmetric protection for the portfolio, in the case of a meaningful sell-off in the coming months. We continue to expect opportunities to add to credit positions over time - but at higher spread levels, given the likelihood of economic weakness in the medium term.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/203219131.pdfJune, 2023
The total Funds duration remained broadly stable over June with a few geographical moves to note. The Fund added exposure to UK gilts as bonds cheapened after a succession of strong economic prints saw the Bank of England (BoE) surprise the market with a 50bp hike. The Fund also added Canadian exposure on a relative value basis by reducing core US Treasury holdings as the yield spread between the two narrowed. Additionally, the Fund also switched out of New Zealand bonds into Australian sovereigns, again after a reasonable narrowing of that yield spread.
The Fund’s credit positioning added to performance versus the benchmark in June, as credit spreads rebounded (tighter) quite sharply. Within the Fund’s credit exposures, BBB rated investment grade corporates and emerging markets were the strongest contributor, reflecting the aforementioned reduced fears of imminent recession; financials and small REIT exposures were also strong performers. Top individual performers included Australian banks such as Westpac and NAB (subordinated debt, in particular), US major banks (Bank of America and Morgan Stanley), and Carnival Corp, one of the few remaining high yield exposures, that produced very strong results and outlook.
The Fund made small changes to credit exposure over the month, adding to Australian financial issuers (where spreads remain more attractive). The Fund also further added to the US Agency Residential Mortgage-Backed Securities early in the month, with spreads on that asset class hovering near post financial crisis wides. We continue to expect opportunities to add to credit positions over time - but at higher spread levels, given the likelihood of economic weakness or recession later this year.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/202261197.pdfMay, 2023
The Funds core duration strategies remained stable in May, with the Funds main exposure largely held in US Treasuries as the US Federal Reserve (Fed) gets closer to completing this aggressive policy tightening cycle.
The Fund also added some exposure to UK gilts given the cheapening of that curve as recent inflation data has been higher than expected. Overall Fund duration fell as the rally in Japanese bond yields provided a good opportunity to put in place hedge strategies to protect the portfolio on the chance that the Bank of Japan relaxes its yield curve control policy – an event, that if it were to occur should see a sharp rise in Japanese bond yields.
The Fund’s credit positioning added value over the month, even as credit spreads widened modestly. The value was added chiefly through protective option positions – these were removed mid-month amidst a weak market backdrop, locking in gains. Security selection within investment grade corporates and Emerging Markets also contributed positively.
The Fund made modest additions to credit exposures during the month, adding exposure in US, European and Australian new issuance, with elevated overall spreads and some deals offering attractive concessions. The Fund added Australian utility Ausnet Services, European insurer Allianz, and US cable operator Comcast – all high-quality issuers with new bonds sold during the month. The Fund removed some high yield credit hedges in the first weeks of the month, with spreads at year-to-date wides (excluding the brief spell of volatility during March), banking profits as those positions were put in place at much tighter spreads in February. The Fund also further added to the US Agency Residential Mortgage-Backed Securities: an asset class that had performed very poorly through 2022 and early 2023, and that now offers historically wide spreads. We continue to expect opportunities to add to credit positions over time - but at higher spread levels, given the likelihood of economic weakness or recession later this year.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/200889185.pdfApril, 2023
The Fund’s interest rate duration remained steady during April at 5.4 years, with little change in geographical allocations. US Treasury bonds remain the largest allocation in the Fund as the US Federal Reserve’s (Fed) tightening cycle looks set to end at the within the next month or so, likely sooner than both the European Central Bank and the Bank of England. Interest rate strategies made a small positive contribution to the Funds outperformance in April.
The Fund’s credit allocations also modestly contributed to the Fund’s outperformance during the month. This was reflective of smaller moves in both credit and bond markets month-on-month, despite still overall elevated volatility. Amongst credit sectors, investment grade (IG) was the largest positive contributor, reflecting continued excess running yield. Most other credit segments provided very small impacts either way. Financials were the strongest sector performer this month, reflecting some rebound in overall sentiment, especially amongst larger US and Australian exposures. Emerging markets security selection was a very small negative contribution, with some higher beta issuers (such as Egypt) weakening.
The Fund made modest adjustments to credit exposures during the month, slightly reducing exposure to European and US IG credit. Spreads in this sector, particularly outside financials, recovered much of their March weakness. As such, re-assessing credits such as Honeywell (a high quality US industrial, but trading at one-year tights) was appropriate. The Fund also added downside protection in credit derivatives, to offer some offset if broad market weakness were to resume. The cost of option hedging, in particular, has fallen sharply as implied volatilities have reduced after the March volatility. The outlook continues to be uncertain and likely to be volatile. We continue to expect opportunities to add to credit positions over time, but at higher spread levels, given the likelihood of economic weakness or recession later this year. The Fund remains positioned with significant liquidity to take advantage of opportunities as they arise. We believe markets will continue to be volatile as we navigate the challenges of bringing inflation down, while trying to avoid overtightening policy. The Fund’s credit exposures overall are heavily weighted to IG, with small emerging markets and very modest high yield holdings. We think that best reflects the environment looking ahead and look forward to opportunities to add to higher beta sectors.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/199694912.pdfFebruary, 2023
The Fund’s interest rate duration rose by around 50bps in February to 5.70%. The rise in yields brought about by stronger data and expectations of higher central bank policy has provided another opportunity to add duration at attractive levels. The increase in interest rate exposures were centered in our core holdings of US Treasuries and Australian government bonds.
The Fund’s credit exposures positively contributed to performance versus the benchmark over the month, with global investment grade credit and Australian c the key drivers of that contribution. Amongst individual credits, Australian and bank exposures were key positive contributors, as subordinated debt in the local market continued to perform well. US investment grade credit exposures were a detractor, with holdings of JP Morgan and Valero, a US refiner, giving up a portion of their recent impressive gains.
The Fund trimmed some higher beta European credits during the month (including a real estate investment trust and a crossover rated industrial issuer) after strong performance. European credit still offers a spread pickup versus other global markets, but the rebound has been significant – with structural energy and inflation problems still lingering. The Fund also trimmed exposures to longer dated Australian corporates after significant spread tightening.
The Fund’s credit exposures overall have come down materially and are heavily weighted to investment grade, with small emerging markets and very modest high yield holdings. We think that best reflects the environment looking ahead and look forward to opportunities to add to higher beta sectors.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/197655927.pdfDecember, 2022
Fund duration was trimmed again last month taking advantage of the continued strength in bond prices as markets anticipate a top in inflation and potentially less central bank tightening. The Fund maintains its core allocation to Australian government bonds and US Treasuries along with yield curve flattening biases in major holdings as central banks continue to tighten policy.
Credit positioning added value to the strategy over the month: investment grade credit benefitted from tighter spreads and increases in allocations made over the last several months, and emerging markets were also positive. The largest industry sector contributions were from financials, transportation, and capital goods.
Key individual names contributing to the credit result again included major financial issuers, such as bonds issued by US banks Morgan Stanley, as well as subordinated debt from Australian major banks. Underperformers included Aroundtown, a European REIT, and Warner Bros Discovery: hit by continued elevated integration costs as the issuer moves to get the costs of its streaming content down to an appropriate level.
The Fund trimmed its credit positioning over the month – mostly in investment grade - reflecting much tighter spreads near the lows of the post-Ukraine invasion environment. Investment grade allocations in both USD and EUR had been added earlier in the year at more attractive spread levels, and reducing the exposures somewhat sets the portfolio up well for an uncertain economic outcome. The Fund’s credit exposures overall are heavily weighted to investment grade, with small emerging markets and very modest high yield holdings. We think that best reflects the environment looking ahead and look forward to opportunities to add to higher beta sectors.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/194875780.pdfNovember, 2022
Fund duration was reduced during November taking advantage in the strength in bond prices. There were some changes to geographical allocations with a reduction in Scandinavian exposure amid the rally while the Fund also participated in a new issue of a New Zealand long end bond. The Fund maintains its core allocation to Australian government bonds and US Treasuries along with yield curve flattening biases in major holdings as central banks continue to tighten policy.
The Fund’s credit allocations contributed to outperformance for the month. A better than expected US consumer price index print was an initial trigger for significant repricing across credit markets, taking spreads back from recent highs, nearer to long-term averages. Amongst credit sectors, emerging markets and investment grade credit were the strongest contributors: investment grade credit spreads were the best (volatility-adjusted) sector across global markets, and are the largest weight in the Fund – a position that has been added to over previous quarters. US Agency Mortgage positioning was a small detractor: the Fund had added to exposures in this sector in recent months at attractive levels but was still underweight the reference benchmark amid a sharp tightening of spreads.
Key individual names contributing to the credit result included senior bonds issued by US banks Morgan Stanley and Bank of America, which had widened consistently all year and had been gradually added to the Fund, reflecting our view that fundamentals in this sector were very strong, and the spread widening was more technical in nature. Recent additions in Euro also strongly contributed: the focus had been adding names less impacted by Europe’s slowing economy, but that had been dragged wider by the broader market. Additions in Euro-denominated bonds issued by PPG (US-based industrial coatings) and Holcim (building materials), are two examples of strong performers this month.
The Fund made small further additions to investment grade credit in the first half of the month but paused buying and moved to small position trims into the end of the month, reflecting tighter spreads and lower new issuance concessions. The Fund’s credit exposures overall are heavily weighted to investment grade, with small emerging markets and very modest high yield holdings. We think that best reflects the volatile and uncertain environment looking ahead.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/193437567.pdfOctober, 2022
The Fund made a meaningful increase in interest rate duration during October as bond yields continue to rise. After aggressively raising policy rates this year in an attempt to combat inflation, policy rates are beginning to enter restrictive territory. This comes as economic growth is clearly showing signs of slowing and financial conditions are tightening. It’s anticipated that future policymaking will start to take that into consideration and begin to moderate. In terms of allocation, the Fund began to accumulate European duration – an area which the Fund has been lightly exposed and where fundamentals now look the most tepid. The Fund also increased its core holdings in both US Treasuries and Australian government bonds and reduced its exposure to long maturity UK gilts, following the UK governments mini budget. The Fund maintains its exposure to shorter dated gilts where aggressive Bank of England policy pricing is unlikely to be met.
The Fund’s credit exposures positively contributed to outperformance for the month. All credit sectors contributed to the result, particularly investment grade, which the Fund had been gradually building exposure to over time. On interest rate positioning, allocations to Australian rates contributed positively to performance, significantly outperforming global yields (which overall ended the month weaker). Amongst individual issuers, holdings of US banks, European tollroads (including a holding receiving an upgrade from high yield to investment grade), and oil refiner Valero were contributors.
The Fund’s positioning remains with significant liquidity, offering meaningful opportunities to begin to look at opportunities in a sharply higher yield environment. During the month, the Fund added to European credit, particularly in new issuance, taking advantage of attractive spreads in non-European or companies less exposed to the European economic cycle in that market: for example, adding Morgan Stanley and US industrial conglomerate Honeywell.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/192409264.pdfSeptember, 2022
Interest rate duration remained around 4.7 years, though the Fund continues to add duration in our core holdings as yields rise. Exposure to both US Treasuries and Australian sovereigns were increased, however, these moves were somewhat masked by a reduction in Japanese exposure initiated after weakness in the Yen. The Fund also reduced its exposure to UK gilts (in favour of European duration) given the size of the governments unfunded tax cuts, though the Fund maintains a healthy gilt allocation given the markets already aggressive pricing for tighter Bank of England policy and the future implications for growth if this tighter policy is fully realised. On the relative value side, the Fund closed out an overweight Danish exposure which took advantage of favourable moves in the foreign exchange basis. Going forward we expect to increase the Funds duration in line with our macroeconomic outlook of slower growth and tempering inflation.
The Fund’s credit allocations detracted from performance versus the benchmark for September, with a broad acceleration of previous themes: inflation, aggressive tightening from central banks, and geopolitics; now joined by financial stability concerns as UK government bond markets suffered significant losses and illiquidity, and global currencies fell sharply all affecting credit markets. The largest single detractor was investment grade credit sector allocations, reflecting the size in the portfolio and additions though the year to this sector, given increasingly attractive spreads – security selection in investment grade was neutral. High yield and emerging markets security selection were also detractors, though to a much smaller degree. Among individual performers, US banks were a detractor (such as Bank of America, Truist and JP Morgan), with spreads reaching levels not seen in the last 10 years (outside of the brief COVID window): we see these names as offering value given the strong fundamentals and are comfortable with the position. The portfolio held no US Agency MBS for the year, a sector which has seen very significant negative performance. Given the attractive pricing now on offer, we began adding to this sector – with spreads now as wide as they have been at any point since the 2008-2009 financial crisis.
The Fund’s positioning remains with significant liquidity, offering meaningful opportunities to begin to look at opportunities in a sharply higher yield environment. During the month, the Fund trimmed a small number of more cyclically exposed sectors, such as auto parts and travel – we view the outlook for markets as remaining volatile and have previously added higher quality investment grade credit during periods of spread weakness. Offsetting this, the Fund added to Agency MBS, a sector it exited in early 2021 at post-crisis tights in spreads. Spreads are now much wider (near historical extremes), and in our view compensate for a lot of the risks surrounding this asset class).
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/191685560.pdfAugust, 2022
The Fund marginally underperformed the benchmark during the month, primarily driven by duration positioning.
The Fund increase its duration by circa 75bps during August. This was implemented by the removal of the JGB underweight position, given the lower probability of the Bank of Japan moving away from its yield curve control policy and also via the addition of US duration as yields rose over the month. In Europe, there was some allocation changes, with the Fund increasing its exposure to UK gilts as they cheapened against core European fixed income. Investors have been revising higher their UK inflation expectations which has been widening the spread between UK gilts and German securities. There were also opportunities to hold Denmark against German bunds as a widening FX basis earned investors a more attractive return on similarly tenured Danish securities.
The Fund’s credit positions positively contributed to performance for August. Most developed credit markets continued to recover into midAugust, before giving a portion of those gains back, and emerging markets rebounded strongly after lagging the recover in July. Amongst credit sectors, investment grade and emerging markets were the largest contributors, with strong contributions from the recent NAB and ANZ subordinated bonds as well as rebounds in small allocations to corporate hybrids, such as US utility Southern Co.
The Fund’s positioning remains with significant liquidity, offering meaningful opportunities to begin to look at opportunities in a sharply higher yield environment. During the month, the Fund trimmed a small number of higher beta credit exposures, after strong recovery into the middle of August – we view the outlook for markets as remaining volatile and have previously added higher quality investment grade credit during periods of spread weakness.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/190487146.pdfJuly, 2022
The Fund delivered a positive return during the month, amid a broad-based rally in yields. There was little movement in the Funds interest rate exposure during the month. Outright duration exposure was steady in July while the only geographical change was moving out of Canadian duration back into US Treasuries given the narrowing of the interest rate spread – reversing a strategy we had enacted the previous month given how rich Treasuries were on the spread basis. Overall duration positioning positively contributed to performance during the month.
The Fund’s credit positions positively contributed to performance for July. Most developed credit markets regained a portion of their losses from June during the month, and wider spreads offered more attractive entry points to add to exposures. Amongst credit sectors, investment grade and high yield were both equal contributors. Emerging markets was also a positive contributor, though smaller, given the rebound in these markets lagged developed market credit. Duration positioning added value, led by Australian rates positioning, with CAD and USD duration also contributing. Among individual performers, a newly added NAB subordinated bond was a strong contributor, as were European infrastructure issuers such as toll roads.
The Fund’s positioning remains with significant liquidity, with cash and short-dated investment grade totalling over 40% of holdings, offering meaningful possibilities to begin to look at opportunities in a sharply higher yield environment. During the month, the Fund added exposures to investment grade credit in the US and Australia, reflecting attractive spread levels even given the volatile and difficult market backdrop. Additions included a new NAB subordinated bond, which priced at the widest spread level for a new AUD issue since 2016, as well as US financials and US industrials, such as refiner Valero.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/189606056.pdfJune, 2022
The Fund delivered a negative return during the month amid the continued broad-based volatility in markets and rising bond yields, driven by central bank tightening and concerns around rising inflation. Fund duration fell over June, largely due to a reduction in Japanese exposure as a hedge against the Bank of Japan potentially changing its Yield Curve Control program. Elsewhere, the Fund took advantage of the higher yields in the early part of the month to add duration – mostly in higher quality sovereigns. The Fund also made some geographical shifts, allocating some US Treasury exposure into Canadian yields with those spreads at 10 year wides and also moved some UK gilt exposure into core Europe after gilts had outperformed European fixed income quite markedly this year. There were also small reductions in exposure to periphery bonds after spreads to core markets narrowed over June.
The Fund’s credit allocations detracted from performance for the month, reflecting sharp volatility and weakness in global credit markets. Amongst sectors, there was similar contributions from investment grade, high yield and emerging markets holdings, with each of these sectors trading poorly. European holdings were the worst individual performers, given the weaker growth outlook in that market and very sharp credit market moves. Among individual underperformers, EUR-denominated bonds from Bank of America, Southern Company (a US utility) and airline IAG were a few of the largest detractors – we remain fundamentally comfortable with the issuers, but market pricing has moved aggressively wider in anything denominated in EUR, even where the business operates outside that region.
The Fund’s credit positioning remains with lower overall exposure, and a preference for investment grade, offering attractive possibilities to consider new opportunities in a sharply higher yield environment. The Fund reduced exposure to high yield issuers early in the month before the material spread widening, judging that the higher beta exposures offered more downside risk in this environment. Offsetting this, the Fund held and added modestly to its investment grade holdings, with spreads much wider offering more balanced risk-reward outlooks, and in issuers (such as building materials supplier Holcim) where we have strong fundamental conviction through the cycle.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/188593049.pdfMay, 2022
The Fund delivered a negative return during the month amid the continued broad-based volatility in markets and rising bond yields, driven by central bank tightening and concerns around rising inflation.
With central banks becoming myopic on fighting inflation in the short term, by raising rates “expeditiously” to neutral levels, the commencement of quantitative easy (QE) and ongoing hawkish rhetoric regarding future rate moves, yields have continued to drift higher. However, given our views around the amount of tightening already priced in by markets and our expectation for more volatility ahead if they do deliver what is priced, we believe this will ultimately cap how far yields can rise. As such, a further drift higher in yields we would view as an opportunity to accumulate duration. As a result, we have recently increased the strategic interest rate duration target of the Fund back up to 4.75 years from 4.25 years (which was a historically low level) as we look to prudently extend our duration position at better levels as a counterbalance to the portfolio’s risk positions.
Our geographical duration allocation remains overweight Australia. We continue to believe that market pricing for Reserve Bank of Australia hikes remains overly aggressive, given the high levels of household debt and high interest rate sensitivity of the economy, resulting in a greater impact of policy rises on growth. We remain underweight European government bonds. Inflation remains a major concern is Europe, as globally, however, as the sole inflation-only targeting central bank, we believe the European Central Bank (ECB) may be more incentivised to hike more aggressively in order to regain control of inflation. As a result, we have been reluctant to accumulate any Europe duration into the drift higher in yields, particularly given the ECB is yet to commence tightening traditional policy (with QE ending next month).
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/187689159.pdfApril, 2022
The Fund delivered a negative return during the month amid the continued broad-based volatility in markets and rising bond yields, driven by central bank tightening and concerns around rising inflation. The Fund continues to add duration to take advantage of rising global yields.
Given the underperformance of Australian government bonds relative to global, we added to our existing Australian exposure. The Fund reduced exposure to the European front end as the European Central Bank becomes increasingly concerned about the level of inflation, which has allowed the market to price in more aggressive policy responses from the middle of the year. The Fund’s credit allocations detracted from the Fund’s performance over the month. That reflects very weak trading conditions in credit markets, with US investment credit recording its worst month for spread widening since March 2020. Amongst credit sectors, modest exposures in global high yield and emerging markets led the weakness – with HY US cable operators and subordinated financials impacted by the broad sell-off. Investment grade credit had a neutral impact on returns, with positive security selection in financials offsetting the impact of the Fund’s overall overweight sector allocation. Issuers that we have strong fundamental comfort with, such as toll-road operator Transurban Queensland and US bank JP Morgan, were amongst the largest single name detractors, reflecting the broad market re-pricing of credit risk.
The Fund’s overall positioning remains positioned with significant liquidity within the portfolio and significantly reduced investment grade credit – offering meaningful scope to begin looking at attractive opportunities in a sharply higher yield environment. For example, US banks are now issuing at spreads near to, or wider than levels at the peak of market stress in 2018, which we think begins to offer an attractive entry point in a sector that has made significant progress in improving capital levels and simplifying operations. The Fund added Bank of America in April, which issued in EUR with a spread of almost 2% over government bonds, or an AUD-equivalent yield of approximately 5%, which we believe offers value for an issuer that should be relatively resilient in a volatile market and economic backdrop.
In contrast, spread tightening from the post-Russian invasion wides offered an opportunity in the first half of the month to trim higher-beta exposures, removing selected more cyclical industrial names, such as Ford Motor Credit.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/187152581.pdfFebruary, 2022
The Fund delivered a negative return over February as markets performed poorly, with geopolitical tensions reaching a crescendo given the Russia-Ukraine conflict. As the concerning and saddening conflict in Ukraine continues to unfold, our thoughts are with the people impacted, and we hope for a swift resolution of the conflict. Within the Fund’s duration positioning, we increased the overall duration level by around 40bps during February, as we took advantage of the rise in bonds yields as markets continued to price in aggressive central bank tightening. We added to our existing overweight position in Australian duration, along with reducing some of our underweight position in EUR duration where valuations were more attractive in the wake of the Russia-Ukraine situation.
The Fund’s credit allocations contributed to the underperformance for the month. There were two key drivers to the market moves: sharply more hawkish central bank rhetoric, mostly early in the month, and Russia’s invasion of Ukraine in the second half. Apart from the clear humanitarian costs, the invasion increases both short and medium term economic uncertainty, including the impact on inflation, global growth, and even the plumbing of the financial system. Credit markets were sharply weaker overall, and the negative credit contribution was driven by the Fund’s holdings of European crossover corporate credit and emerging markets (EM) credit – both of these sectors are clearly more impacted by the Russia-Ukraine situation. However, the geopolitical impact on markets have been more broad-based, and even sectors that are more remote from the situation have been affected. For example, Charter Communications (US-based cable operator) was one of the more meaningful detractors to returns for the month, amidst other more regionally impacted names such as European banks and industrials.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/185019035.pdfJanuary, 2022
The Fund delivered a negative return over the month of January.
The Fund’s duration remains at relatively low levels, though it did increase slightly to take advantage of rising global yields. The Fund retains its exposure to Australian fixed income where the level of inflation appears more subdued and monetary policy is expected to be slower to respond than in other major developed markets.
The Fund’s credit exposures modestly detracted from performance for the month, with positive contributions from structured securities and investment grade security selection, more than offset by the detraction from high yield security selection. The move in credit spreads in January was the sharpest widening since March 2020, which underscores the pace of the move in the month but also the generally low volatility environment that we are now likely exiting. The Fund's high yield and emerging markets debt holdings were detractors – for example, BB-rated credits (such as Air Canada) and high yield cable issuers traded wider, with no changes to fundamentals but more uncertainty on the pace of the US Federal Reserve rate hikes. In contrast, UK travel exposures such as International Airlines Group and Gatwick Airport contributed positively as the UK announced they would ease cross-border travel restrictions, and selected energy exposures also performed well, including US pipeline holdings.
The Fund added some credit exposures during the month, with wider spreads on offer and strong issuance offering some opportunities. This included US banks in new issuance, where volumes were very strong, and short-dated credit, where we continue to see attractive spread levels and limited duration risk.Overall, the Fund maintains a healthy liquidity allocation and lower overall risk exposures, and we remain open to using market volatility as an opportunity to vigilantly add to preferred positions. With central banks pivoting to a message of rate hikes and stimulus withdrawal in recent months, we expect bouts of volatility to be much more prevalent versus 2021
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/184270343.pdfDecember, 2021
The Fund delivered a positive return over the month of December.
The Fund’s duration positioning has remained stable in December at around 3.3 years. We did shift some US Treasury exposure into Europe and the UK as the US Federal Reserve (Fed) communicated a greater chance of rate hikes in Q1 of 2022. Australian sovereigns have remained a core holding of the Fund as there is a clear divergence between Australia’s inflation profile and central bank policy relative to its global counterparts. Australian sovereigns have also exhibited higher yields and more attractive carry.
The Fund’s credit allocations contributed to the outperformance in December. The year-end rally in credit spreads had several drivers, including much lower issuance volumes into year-end, low liquidity (making buying new bonds more difficult), reduced concerns about the new Omicron variant, and apparent comfort from broad markets with the Fed’s approach of accelerating the tapering of their asset purchases. The key credit sector drivers for the Fund’s performance were allocations to high yield and emerging market credit, which benefited from the improved economic outlook and have been somewhat more shielded from government bond market volatilities. Within credit holdings, some of the top performers included travel-sensitive sectors such as airlines – including International Airlines Group and Air Canada – reflecting the reduced fears around Omicron.
During the month, the Fund has continued to add short-dated credit with some yield on offer and limited interest rate duration exposure – this remains our preferred use of cash when there is limited new issue or higher yielding options. After a rebound in investment grade spreads, small travel exposures were trimmed during the month after very strong long-term performance and at fair value
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/182470224.pdfNovember, 2021
The Fund delivered an overall positive return over the month of November despite some volatility in rates markets and weakness in credit markets. The Fund’s duration positioning remained stable over the month at around 3.3 years, with most exposures in Australian fixed income where yields have remained relatively attractive.
The Fund also moved some UK gilt exposure into US Treasuries after the Bank of England surprised the market by keeping rates unchanged at its November meeting. This saw UK gilts at their most expensive levels versus US Treasuries since last April. The Fund’s credit allocations modestly detracted from returns, reflecting volatile spreads through the month and a particularly weak finish to November.
The weakness late in November was driven by news of the new Omicron variant, followed by an apparent change in tack from the US Federal Reserve, as they changed their characterisation of inflation, dropping the word ‘transitory’ from their vocabulary on the subject. Emerging markets (EM) were also a detractor, reflecting the broader macro concerns, as well as EM’s generally higher sensitivity to growth and inflation changes. The Fund’s currency positioning added value to performance, as we have engaged in a number of FX option structures recently to help protect downside risk in the Fund – principally short AUD positions against USD and JPY. Those risk hedges were effective in offsetting credit market weakness, which was led by investment grade credit and EM.
The Fund made no material changes to its credit exposure over the month, apart from participating in some new issues, which offered value. These include a new Melbourne Airport bond and an Ampol hybrid that came wide in spreads relative to existing bonds from the issuers, as well as selected new US issuers.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/181812886.pdfOctober, 2021
The Fund delivered a negative return in October, with duration positioning a detractor amid the sharp moves in short-dated bonds. Bonds were the key focus during the month, with markets testing central bank commitment to maintaining low rates by pushing yields of shorter maturity bonds significantly higher. The dramatic moves were also exacerbated by apparent unwinding of positions in markets such as Australia.
The Fund is positioned with a lower strategic level of interest rate duration compared to previous years and the reference benchmark, given lower overall global yields and the ongoing fear of inflation. Much of the duration exposure was held in Australia, which was amongst the most heavily affected by the market moves. Notably, while month-end marked the peak of the volatility, some rebound in the Australian bond market has already been evident in early November, reversing some impact had on the Fund. We also believe that the market pricing for rate hikes by the Reserve Bank of Australia, which were brought forward to over the next 2 years, remains fundamentally unjustified and extreme at present, in our view. In the Fund’s geographical allocations of duration, we took the opportunity to add to the positions in short maturity Australian rates as the rates sell-off intensified, including some additions near the peak of the market stress and at levels we viewed as extreme. We also added European exposure during the month as investors began to price in the unlikely event of the European Central Bank increasing policy rates next year along. The US exposure was increased slightly following the rise in yields there, while Chinese sovereign exposure was reduced on valuation considerations.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/181064515.pdfSeptember, 2021
The Fund delivered a negative return in the month of September. Bond yields rose across major markets in the month as the market keyed on the next policy action of central banks, improving fundamental data and higher inflation expectations as food and commodity prices ratcheted higher.
The duration of the Fund was increased in September, using the rise in yields to reduce our underweight to US Treasuries. We also changed some geographical allocations, favouring UK rates over Canada in the longer end given more favourable net supply during the month, and favouring short-end UK rates against similar maturity US securities on valuations. We also increased our Scandinavian exposure against core European rates as these bonds have been more attractive on a hedged yield basis. Interest rates strategies underperformed largely as a result of our UK exposures.
The Fund’s credit positioning added to performance for the month, reflecting good relative performance in BB and BBB related credits. Amongst the strongest individual positions, holdings of airlines such as Air Canada and International Airlines Group (parent of British Airways) performed well as the US moved to open up transatlantic travel. Weaker performers included some portions of emerging markets debt, which have relatively underperformed with developments in the Chinese market. Overall, the Fund’s emerging markets exposures contributed a flat result for the month
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/179655957.pdfAugust, 2021
The Fund delivered a positive return over the month of August. Within duration positioning, the Fund’s duration exposure was reduced in August by further selling US Treasuries with the likelihood that peak monetary easing in the US is behind us, which should see US yields rise from here in the medium term. The Fund has continued to favour Australian interest rate exposure despite the recent outperformance given the COVID-19 situation in Australia and the likelihood of the Reserve Bank of Australia (RBA) policy remaining on hold while peers gradually reduce stimulus. The higher yields and better rolldown also favour Australian bonds.
The AUD currency options held in the Fund were a key contributor to performance, with an option structure implemented to provide downside protection to the Fund if the AUD falls. This was put in place as an attractive downside protection alternative to interest rate duration, which currently offers less upside and more potential volatility. The currency position added value even as risk markets were steady and with growing pessimism over the pace of Australian economic growth given the extended lockdowns, and the position was partly covered before the currency began rebounding into month end.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/178795602.pdfJuly, 2021
The Fund delivered a positive return over the month of July.
The Fund’s interest rate duration exposure was reduced during the month, with the changes coming in the Europe (particularly Germany) exposure, where bonds have again fallen into deeply negative territory, and we consider valuations unattractive over the medium term. We increased the Fund’s exposure to Scandinavia where bonds had cheapened sufficiently to become relatively attractive on a hedged basis to Australian investors.
The Fund’s credit positioning contributed to performance, with security selection adding value even as credit markets generally traded weaker. Amongst sectors, investment grade (IG) credit security selection and Australian mortgage-backed securities were key positive contributors, with hybrid exposures in banks and corporates and a rebound in European travel exposures amongst the top performers. Emerging markets (EM) debt detracted from performance in July, with exposures in selected Latin American issuers trading weaker on global growth concerns and the sharp rally in developed market bond yields, as well as specific concerns around some high yield EM issuers weighing on sentiment for the broader market. Despite the extended lockdown in Australia, holdings of AUD corporate credit generally held in well, reflecting strong overall demand and some expectations for further policy support, though there was some modest weakness in direct COVID-impacted sectors such as airlines and other travel sectors. USD credit was weaker in general, driven by strong new issuance and some growth concerns.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/175739309.pdfMay, 2021
While society is discussing the evolving pandemic, vaccination rollouts and the re-opening of economies (or occasional lockdowns), fixed income investors are obsessing about inflation. During May, the data for April revealed that inflation was indeed rising, yet bond markets barely reacted. This was because the reasons behind the rise of inflation have been telegraphed. There are base effects, including the big declines in inflation at this time of 2020 now being reversed, logistical challenges as a result of supply chain disruption, and the impact of economic re-openings with a resultant surge in demand. It is also expected that these same forces will persist for the next few months. Over the past decade, fixed income markets have moved to fully embraced the theme of ‘lower for longer’, that is, persistently low interest rates. Therefore, inflation is a material threat to the current environment. We therefore expect the debate about inflation to rage for some time, which means that we are in a period of heightened sensitivity to inflation risk for fixed income markets.
While bond yields broadly moved within narrow ranges during May, this masked another theme – the lack of ‘global synchronisation’. COVID19 had an uneven impact across countries in 2020, which resulted in differentiated economic outcomes. The vaccine rollouts are also inconsistent across countries, which is expected to have a differentiated economic impact on countries through 2021. This can be observed microscopically in relative spreads. For example, US Treasury yields peaked at the end of March and have been grinding lower in subsequent months, while European yields posted their highs in late May. The relative spread moves are still modest because central banks globally have maintained a consistent ‘dovish’ approach to their policy, but as this evolves in the months ahead we suspect that spread volatility can increase
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/173158174.pdfApril, 2021
Some challenges continue to present in fixed income markets. Starting with the facts, during April US President Biden unveiled two infrastructure packages targeted at an additional $US4tn of stimulus, following hot on the heels of the third fiscal support package since the pandemic hit. In the US, as vaccine administration accelerates, new cases fall and pressure on hospitals eases, the process of re-opening the economy continues to be supported. Sentiment surveys rose, employment grew, and inflation jumped to 2.6%. Equities also surged to another new high and credit spreads tightened to pre-pandemic levels. Yet, bond yields were lower on the month.
Risk markets have been running on the growth recovery and the strength so far coming through in Q1 earnings. While bond yields marched higher through 4Q20 and 1Q21, reflecting the lifting of deflationary fears, price actions have suggested that inflation may not be as big a risk as many economists are suggesting. Central banks have dismissed the current and expected rise of inflation as transitory, citing deeps scars from the pandemic that are at work to add to the pre-existing structural downward pressures on inflation. Calming words echoed by most central banks have quelled, but not eliminated, the fears in bond markets that monetary stimulus can be tapered. The Fund posted a solid performance in April, driven by the allocations to credit, the position on duration, and security selection within its emerging markets (EM) debt holdings.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/171268522.pdfMarch, 2021
The theme of ‘divergence’ has been observed over the past months, with uneven impacts of the pandemic across countries and sectors as well as varied fiscal responses by different governments. Adding to the divergence has been the vaccination rollouts. Amongst developed countries, the UK and US have led the way on vaccine administration, which are enabling the gradual re-opening of their economies. In contrast, Europe has laboured and is now dealing with a third wave of coronavirus and a re-tightening of restrictions. The combined result has caused US rates to shoot higher, led by the 10-year bond yields, and yield curves to steepen sharply. European yields, on the other hand, actually fell by a few basis points. So, for fixed income investors, country selection and positioning were key drivers of performance in the month of March. That said, there should be no allusions to the challenges facing fixed income in 2021, as the volatility across interest rate markets experienced during the first quarter is likely to continue as investors cope with the uncertainties still surrounding the virus, the challenges of the vaccination process and the expected volatility in the month-to-month economic data. Still, supportive policies and a gradual re-opening of economies are combining to underpin risk markets, where credit spreads have remained resilient and close to historic tights. The Fund delivered a positive total return in the month of March. The Fund’s duration has remained at low levels given that the reflation theme remains front and centre for bond markets. The Fund holds a low level of US Treasuries given that the US fundamentals are expected to be stronger than peers, and favours Australian securities given the relative attractiveness on a hedged basis. Duration strategies contributed positively to returns. The Fund’s credit allocations also contributed positively to performance in March, principally driven by exposures to higher-beta investment grade credit (BBB and hybrid securities). Most of the portfolio activities centred around new issue opportunities during the month, with strong issuance volumes in the US and Europe offering some options for adding bonds. Additions within the Fund included US technology company Oracle Corporation, which was downgraded just before the new bond was offered and repriced significantly wider, offering attractive spread levels; and UK’s Gatwick Airport, which has a long recovery ahead but is supported by its relative focus on leisure travel, a sector that we expect to rebound much more rapidly. The new additions were offset somewhat by the continued reduction in exposures to issuers that had performed well, and we have continued to prefer higher-beta, shorter-dated credit over longer-dated issuance with limited spread on offer. Overall, the credit market is heavily ‘picked over’ and the Fund’s allocation to credit has been trimmed back in recent months, but some opportunities continue to offer relative value.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/169813395.pdfFebruary, 2021
The reflation theme gripped bond markets during February, fuelled by the roll-out of vaccines, the continued surge in oil and copper prices, rising expectations for a large US fiscal package being agreed in March, and the continued strength across the manufacturing sector. Bond yields surged higher and yield curves steepened, with the Antipodean markets leading the charge. It was interesting to observe that credit spreads actually tightened amidst this big move in bond markets, which supports the thought that the movements in yields were generated by a belief in stronger growth rather than an outright fear of sustained higher inflation. Central bankers have weighed into this debate, arguing that the market is re-pricing because of growth. Despite the market bringing forward rate hike expectations, they are maintaining their already stated commitment to keeping policy focused on supporting the recovery.
While the Fund’s overweight credit positioning positively contributed to performance, with bond yields rising sharply in February, the total return of the Fund was impacted negatively by the outsized moves over the month despite the low levels of duration held by the Fund relative to its historical levels.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/167665927.pdfDecember, 2020
Financial markets ended a tumultuous 2020 with the expectation that the new year will be a pathway to returning to normality. Risk assets continued to rally into year end, buoyed by the news that mass vaccination has begun. But at its core, the rally has been underpinned by the unprecedented monetary and fiscal responses across the globe. Global sovereign yields, in contrast, only edged cautiously higher while embracing the fundamental reality that the global economy has experienced a massive deflationary shock as a result of the pandemic, and that the road to recovery is likely to be long and rocky.
The Fund’s performance in December was supported by the grind tighter in credit spreads. The combination of very low sovereign bond yields and direct central bank support has been driving a search for yield by investors. This was illustrated by the fact that high yield and emerging markets USD-denominated sovereign spreads were back to their February (pre-pandemic) levels despite the significant deterioration in macroeconomic fundamentals. While global sovereign yields are now higher than their mid-year historic lows, the overall level of yields has remained well below their pre-pandemic levels.
The Fund’s credit exposures added value over the month against a backdrop of spread compression in global credit markets. The largest contributor to the Fund’s performance was investment grade (IG) credit security selection – and in particular holdings of BBB-rated IG credit – with recovery trades such as selected air leasing and toll road issuers performing strongly. Other credit sectors including emerging markets debt and high yield credit also added value. Early in the month, the Fund trimmed its exposure to longer-dated ‘generic’ IG credit, viewing the upside remaining in the 5 year and longer maturity bonds as less attractive, particularly in the sectors less impacted by the virus. This was replaced by holdings of short-dated subordinated bank holdings, which we believe offer some yield, but more importantly, are likely to be much better supported in the event of any renewed volatility.
The Fund’s duration positioning was a small detraction from performance in December, largely coming from our overweight allocation to Australian securities. The level of duration in the Fund was relatively steady at around 4 years with geographical allocations tilted towards Australia, which remained attractive on a relative value basis versus US Treasuries. The Fund’s UK gilt exposure was reduced in the wake of the EU-UK free trade deal.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/163334721.pdfNovember, 2020
November was a solid month for financial markets, driven by positive news on vaccines and more clarity on the outcome of the US election. Two potential disruptive concerns, however, could likely be overlooked at present, namely the logistics of distribution and vaccination for the global population, and a split US Congress. The pattern of markets performance in November was led by risk assets across multiple asset classes. In fixed income, high yield credit led the way, while in currencies it was emerging markets. There was a rotation out of safe havens, with gold (-5.4%) and silver (-4.3%) giving back some of their strong gains of recent months. Notably though, global bond yields were resilient, with both US and European yields ending the month lower and spreads in peripheral Europe becoming tighter. However, New Zealand and Australia were the underperformers as their yields rose over the month.
The above environment, combined with our overweight position in credit, enabled the Fund to generate a strong return in November and considerably outperform its reference benchmark. The Fund’s interest rate exposure was broadly steady in November and its overall duration level was stable at around 4.0 years, but with some rotation out of US Treasuries into Australia as the yield spread between the two had widened. The Fund has continued to run moderate levels of duration given the low level of yields. The duration positioning posted a modest positive contribution to performance in the month.
The Fund’s credit positioning contributed to performance in November as global spreads narrowed, with its global investment grade sector allocation being one of the largest drivers of returns. Importantly, what also added considerable value were the additions of several selected issuers over the last several months that would benefit from an economic recovery in some of the most COVID-impacted sectors. Holdings of selected airlines (such as Qantas and Delta Air Lines), air leasing companies, and airports were all strong contributors to returns. The Fund’s smaller holdings in emerging markets debt and high yield credit also performed strongly in the month.
The Fund maintained relatively steady levels of overall credit risk through the month, while adding further to selected recovery trades and rotating out of some less COVID-impacted issuers that offered limited upside. The additions included European toll road hybrid bonds and franchise bonds from a quick service restaurant operator in the US, which both performed well while still offering upsides from here. The Fund continues to implement a barbell strategy overall, owning selective high beta sectors and investment grade holdings with material spread tightening potential, strong liquidity levels, as well as lower exposure to generic investment grade credit which should remain supported but offer limited upside from current levels.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/161512779.pdfOctober, 2020
There were three main themes colliding during October for financial markets to navigate. First, the virus. As the northern hemisphere countries returned to school and university in September, virus case counts began to rapidly rise. Surging cases were soon followed by rising hospitalisation and this factor was key in pushing governments to re-introduce restrictions. Across Europe and the UK, these new restrictions were not the full lockdown of earlier this year, but are still very significant, effectively closing most of the services sector for the coming month. Secondly, the US election loomed on the horizon. It is significant because expected fiscal stimulus has not been agreed ahead of 3 November and the outlook for fiscal policy is clouded by the potential complexity of the final result. Finally, Q3 economic data confirmed the sharp bounce in activity from the dire Q2 levels, but early data for Q4 suggests that activity is slowing, largely a result of the above themes.
During October, these events combined to create some volatility, with risk initially rallying before paring back gains while government bond yields moved higher, which steepened yield curves. This volatility was not uniform across countries. In rates, rising US Treasury yields notably underperformed European government bonds, where yields fell over the month. In credit, US investment grade (IG) spreads outperformed European IG. Spreads narrowed modestly in the high beta sectors of high yield and emerging markets.
The Fund delivered a positive return in October. The Fund’s holdings of credit securities added meaningfully to performance over the month, with IG credit contributing to both sector rotation and security selection. Small positions in high yield and emerging markets also added to returns through positive security selection outcomes. The Fund added some new high yield bonds and emerging markets exposures over the month, while trimmed exposures to IG credit that had performed well and offered limited upside from here.
Credit markets were overall stronger in October, driven by the strong supply-demand technicals and reflecting the direct central bank support underpinning IG credit in particular. The demand for credit globally has remained strong as investors continue to search for yield. Retail inflows to bond funds and exchange-traded funds generally remained strong, while insurance companies continued to be strong buyers of global corporate credit. New corporate issuance was low, in part due to the beginning of the Q3 earnings season in the US and a considerable amount of corporate funding already complete earlier this year. Thus, credit spreads have tightened even as macroeconomic news deteriorated and virus cases escalated. The higher yielding parts of the market was softer toward the end of the month, and several higher beta issuers were forced to pull new deals from the USD market due to unattractive pricing or lack of demand for most high-risk credits, though most of the IG and broader credit markets remained well supported.
The Fund’s overall duration was reduced in October to levels slightly below its strategic target. This reduction was largely in Australian government bonds after yields fell in response to the Reserve Bank of Australia indicating in the November meeting that it is likely to provide further monetary stimulus to the economy. Allocations to European and UK bonds increased as we expect the tightening of restrictions to further undermine growth in coming months and expect to see higher market pricing of central bank policy response by both the European Central Bank and Bank of England. The Fund’s exposure to US Treasuries remained modest and was focused in the 5 year part of the curve.
File: https://commentary.quantreports.net/wp-content/uploads/2020/12/160483246.pdfticker: MAQ0274AU
commentary_block: Array
factsheet_url:
https://investmentcentre.moneymanagement.com.au/factsheets/mi/lsk9/macquarie-dynamic-bond
Fund Highlights
release_schedule: Monthly
fund_features:
Macquarie Dynamic Bond Fund aims to generate attractive returns by dynamically investing in global fixed income instruments. It provides diversification against equity risk as well as capital growth and some income. The Fund provides exposure to other fixed income sectors such as high yield and emerging markets debt when these are expected to outperform.
- The portfolio is generally hedged to Australian dollars. However, any exposure to emerging markets debt issued in the local currency of the debt will generally be unhedged.
- Considered as a medium risk/return investment.
- Uses Bloomberg Barclays Global Aggregate 1 to 10 years Index hedged to AUD as the benchmark.
manager_contact_details: Array
asset_class: Fixed Income
asset_category: Bonds - Global / Australia
peer_benchmark: Fixed Income - Bonds - Global / Australia Index
broad_market_index: Global Aggregate Hdg Index
structure: Managed Fund