August, 2023
Income return was the most substantial contributor to outperformance during the month. led by RMBS. banks and non-financial corporates The income generated by the Fund's exposure to floating rate notes and allocation to cash have benefitted from the aggressive increase h base rates over the past 16 months. The portfolio's running yield was 5.8% at month end, with the spread measured at 1.9%. Credit spread contraction contributed to outperformance during August as domestic spreads continued to grind tighter. The Fund's exposure to secur it isecl sectors was the most significant contributor to credit spread return. This was partially offset by widening spreads among a number of Euro denominated bonds across diversified financials. real estate and non-financial corporate sectors.
In recognition of tightening financial conditions, the Fund continues to maintain a highly liquid sleeve (•1315%) of cash and government securities which protects against liquidity tail risks. The Fund maintains a small (0.4 years) duration exposure as a result of the government bond allocation. The Fund's duration exposure was rewarded during the month as yields ended the month slightly lower. contributing to return. The Manager elected to shorten the Fund's duration while maintaining the government bond exposure.
Issuance volumes were resurgent during August and the Fund was active in primary and secondary markets The Manager elected to add exposure to domestic and offshore banks. The Fund took part in the 45.0B senior unsecured deal from CBA before monetising the new issue concession. taking profit shortly after issue. The Manager elected to take part in the new 10-year 4750M fixed rate deal from Lloyds Banking Group which performed well over the remainder of the month, contributing to outperformance.
The outlook for credit remains delicately poised. the Manager remains conscious of the implications of slowing growth and tightening financial conditions for credit valuations and liquidity. The Fund remains defensively positioned while retaining the capacity to take advantage d relative value opportunities presented as the outlook improves.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/329_pfp-6.pdfJuly, 2023
Income return was a substantial contributor to outperformance during the month, led by RMBS, banks and non-financial corporates. The portfolio’s running yield was 5.7% at month end, with the spread measured at 1.8%.
Credit spread tightening was the most significant contributing factor to return during the month. Domestic spreads narrowed over the month on supportive supply dynamics and increasing investor risk appetites. Subordinated bank exposures performed well as tier 2 and hybrid paper tightened, reflecting elevated secondary market demand and a paucity of new issues. Tightening RMBS spreads also contributed to outperformance. Lastly, the Fund benefitted from exposure to foreign denominated credit across multiple sectors. USD spreads outperformed AUD counterparts and the Fund’s exposure to USD denominated corporates, domestic and offshore banks were constructive. The Manager elected to lock in recent profits on foreign denominated issues from Ausnet and Macquarie following rallies early in the month.
In recognition of tightening financial conditions, the Fund continues to maintain a highly liquid sleeve (~15-18%) of cash and government securities which protects against liquidity tail risks. The Fund maintains a small (0.6 years) duration exposure as a result of the government bond allocation.
Primary market activity was subdued and the Manager was selective in purchases made during the month. The Fund increased its exposure to CMBS via a new $500M Think Tank deal. Early in July, the Manager elected to add exposure to a recently issued EUR denominated Morgan Stanley senior bond which tightened throughout the remainder of the month, contributing to outperformance.
While the outlook for credit has improved, the Manager remains conscious of the implications of slowing growth and tightening financial conditions for credit valuations and liquidity. The Fund remains defensively positioned while retaining the capacity to take advantage of relative opportunities presented as the outlook improves.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/329_pfp-5.pdfJune, 2023
The Fund’s June relative return was notable, accounting for more than 25% of the Fund’s annual outperformance target in a single month. Income return was a significant contributor to outperformance during the month, led by RMBS, domestic and offshore banks. The portfolio’s running yield was 5.7% at month end, with the spread measured at 2.0%.
Credit spread tightening was the most substantial contributor to return during June. Domestic credit spread dynamics were relatively subdued, narrowing slightly on aggregate while remaining in range of recent levels. The Fund’s exposure foreign denominated hybrid securities was the key contributing factor to the robust credit spread return. After reducing hybrid exposures early in the year, the Manager selectively added exposure to Macquarie and Westpac USD denominated hybrids at attractive levels following the sharp selloff in March in the wake of UBS’s purchase of Credit Suisse. In June, the spreads on these positions narrowed substantially and the Manager elected to take profit on the Fund’s USD Westpac hybrid exposures. Elsewhere, Euro denominated hybrids in the utilities and telecommunications sectors were significant contributors.
In recognition of tightening financial conditions, the Fund continues to maintain a highly liquid sleeve (~15-18%) of cash and government securities which protects against liquidity tail risks. Allocation to government bonds contribute to the fund’s running income and allow the manager to inexpensively express duration positions. During the month the Manager added exposure to government bonds, increasing the Fund’s duration to 0.6 years by month end.
The Fund was relatively active in primary and secondary markets during the month. The Manager elected to take part in the record-breaking subordinated deal from Westpac before monetising the new issue concession, trimming the exposure as spreads tightened. The Fund invested in the new fixed rate issue from AGI finance which the manager believes offers attractive carry for the level of risk. The Fund also bought some recently issued EUR denominated Sydney Airport senior bonds in secondary which were priced cheaply relative to the AUD BBB curve. The Fund remains defensively positioned while retaining the capacity to take advantage of relative opportunities.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/329_pfp-4.pdfMay, 2023
Income return was the most significant determinant of outperformance during May. The Fund continues to collect a healthy running income in excess of the benchmark and rising interest rates continue to increase the coupons paid on the Fund’s floating rate assets. The portfolio’s running yield was 5.6% at month end, with the spread measured at 2.0%.
Credit spread tightening added modestly to performance. During a month of benign spread dynamics, non-financial corporate exposures detracted slightly due to limited spread widening across a small number of issuers with a modest positive contribution from utilities.
In recognition of tightening financial conditions, the Fund continues to maintain a highly liquid sleeve (14-15%) of cash and government securities which protects against liquidity tail risks. During the month the Manager actively traded government bonds electing to add to and later liquidate the position.
Allocation to government bonds supported the Fund’s running income during the month, the Fund’s curve positioning contributed to outperformance. The Fund was active in primary and secondary markets during May. The Manager was able to monetise new issue concessions on deals from NAB and Credit Agricole. The Fund added allocation to a number of RMBS and ABS issues, taking the opportunity to rotate into higher yielding tranches and longer dated issues. Domestic regional and offshore bank exposures were added to in primary. Non-financial corporate exposures were selectively trimmed with the Manager taking profits on a number of positions. This included a USD denominated NBN co fixed rate bond which performed well as a result of Moody’s upgrading its credit rating during the month.
Throughout the first half of 2023, the Manager has reduced credit risk in the Fund in line with the negative outlook. The credit outlook has improved recently while remaining slightly negative. Accordingly, the Fund remains defensively positioned while retaining the capacity to take advantage of relative opportunities.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/329_pfp-3.pdfDecember, 2022
Income return was the most significant contributor to relative return during the month. Financials and securitised sectors were the most substantial drivers of income return with non-financial corporate exposures also contributing. Ongoing increases in interest rates and expanding credit premia have contributed to the increase in portfolio income over the past year. The portfolio’s running yield was 4.8% at month end, with the spread measured at 2.1%. Credit spread dynamics contributed to outperformance during December. Credit spreads traded in a tight range, narrowing over the course of the month. Credit spread performance was led by domestic and offshore banks with corporates and utilities also contributing.
The Portfolio’s exposure to USD denominated domestic bank debt performed well, led by Macquarie and Westpac USD hybrids. The Fund’s small, short position in the EUR Xover CDS index performed well during December as Euro corporate spreads surged in the middle of the month. The Manager exited the position at the peak in the wake of the surprise announcement on monetary policy by the Bank of Japan (BoJ), which loosened the yield on its ten year government bonds from 0.25% to 0.5%, wreaking havoc on equity, bond and currency markets. In recognition of tightening financial conditions, reduced liquidity (as a result of quantitative tightening by central banks) and the challenging outlook for credit, the Fund maintains approximately 10-15% weighting across cash and highly liquid government and government adjacent sectors. After selectively adding during December, the Fund‘s semi-government exposure was 8.3% at month end. The contribution of duration exposure was constructive. The portfolio began the month with near 0 duration. The Manager elected to add duration exposure as long term yields rose following the surprise BoJ policy change. As yields retraced lower by month end, portfolio performance benefited from the modest positive duration exposure (less than six months). Sector allocation was actively managed during the month.
Allocation to domestic bank and semi government sectors was increased. RMBS exposures were rotated with the manager electing to take part in the December Resimac deal and trimming a number of existing RMBS positions. Elsewhere, the Fund took part in the new benchmark deal from Suncorp Metway. As the outlook for credit spreads improves, the Fund retains capacity to take advantage of relative value opportunities.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/329_pfp-2.pdfNovember, 2022
Income return was the most significant contributor during the month. Financials and securitised sectors were the most substantial drivers of income return with utilities and corporate exposures also contributing. As interest rates continue to rise and credit premia widen, the Fund’s running yield continues to increase, mitigating the impact of ongoing credit spread volatility. The portfolio’s running yield was 4.5% at month end, with the spread measured at 2.0%. Credit spread dynamics were constructive for performance during the month. Credit spreads tightened on aggregate while performance was mixed by sector.
The Fund’s allocation to offshore financials performed well, most notably a number of Euro denominated hybrid exposures. Domestic bank subordinated spreads were impacted during the month as APRA issued a statement reiterating prudential requirements for callable instruments. Over recent months, in recognition of tightening financial conditions, reduced liquidity and the challenging outlook for credit, the Fund has held approximately 20%-25% in cash and highly liquid government bonds. During November, this defensive allocation was reduced in line with the improving outlook to 10-15%. The Manager elected to invest in semi-government securities which offer a slight premium to government bonds while remaining highly liquid and relatively low risk.
The Fund’s semi-government exposure’s duration was hedged via short government bond futures which gave the fund exposure to swap spread tightening. During the month, the small semi-government allocation performed well, contributing to outperformance. Sector allocation was actively managed during the month. Exposure to securitised sectors was selectively increased over the month.
The Manager believes that securitised assets currently offer relative value following recent tightening of the spread between the 1-and-3 month swap rates, with most securitised bond coupons benchmarked against 1 month bank bill swap rates. Elsewhere, the Manager elected to take part in new deals from NAB and ING bank, both of which priced at attractive levels and performed well in secondary
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/134_pfp-8.pdfOctober, 2022
Income return was the most substantial contributing factor to performance during the month. The fund’s running yield continues to increase as interest rates rise and credit premiums widen remaining a crucial buffer mitigating ongoing volatility in credit and fixed income markets. The portfolio’s running yield was 3.9% at month end, with the spread measured at 1.9%. Credit spread dynamics were slightly negative for performance during October. Credit spreads moved slightly wider over the month while swap spreads expanded sharply. Credit spreads remain impacted by reduced secondary market liquidity. The Fund’s exposure to USD corporates and financials were the most significant detractors as USD credit widened.
The Fund’s long position in the EURO crossover CDS index (which tracks European non-investment grade corporate issuers) performed well during the month. Euro denominated spreads have recovered over recent months following a sharp widening in June 2022. The Manager elected to take profits on the position, reducing credit risk within the portfolio. In recognition of tightening financial conditions, reduced liquidity and the challenging outlook for credit, the Fund continues to actively trade Australian government bonds. Over recent months, the Fund has held approximately 20%-25% in cash and highly liquid government bonds. During October, the Fund’s government bond exposure performed well as yields rallied and by month end, the Manager had reduced the position. The Manager was active in primary and secondary markets during the month.
The Fund took part in new deals from ANZ and Commonwealth Bank which offered attractive spreads and are indicative of the potential opportunities presented by recent spread widening. Elsewhere, the Manager was opportunistic in purchasing a number of competitively priced RMBS lines in secondary that were liquidated as part of the response of UK pension funds to the GILTs crisis. Securitised assets performed well during the month, with credit spreads contracting and contributing positively to portfolio returns. Overall, the fund remains defensively positioned in recognition of the challenging outlook for credit spreads and increasingly tight financial conditions, while retaining the flexibility to take advantage of relative value opportunities presented by recent volatility.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/329_pfp-1.pdfAugust, 2022
The rise in credit yield premiums and official cash rates over the first half of 2022 has improved the Fund's running yield as a result of its predominantly floating rate structure. The portfolio's running yield was 3.1% at month end with the spread measured at 2.0%.
The expansion of credit spreads observed over recent months slowed in July. While AUD spreads ended the month slightly wider, USD and especially EUR spreads tightened, the latter recovering a portion of the dramatic selloff observed in June. During June, following the dramatic selloff in EUR credit in June, The Manager elected to add a long position in the EURO crossover CDS index (which tracks European non-investment grade corporate issuers). As EUR spread recovered, the position contributed substantially to performance. The Fund's exposure to financial spreads - most notably offshore banks - also performed well, contributing to outperformance.
The Fund continues to hold and actively trade Australian government bonds, contributing to portfolio liquidity and running income, whilst further strengthening the portfolios credit quality. In recognition of tightening financial conditions and the challenging outlook for credit the Manager has allocated approximately 25% of the fund to highly liquid exposures across cash and government bonds. The funds duration exposure performed well during July, with bond yields rallying on rising recession concerns and moderating monetary policy tightening expectations.
With a challenging outlook for credit spreads and reduced liquidity in secondary markets, risk management remains paramount. The Fund maintains its defensive positioning while retaining the flexibility to take advantage of relative value opportunities presented by recent volatility. The contribution of duration and synthetic credit positions during the month demonstrate the potential benefit offered by the flexibility of the Fund's elevated cash and government bond allocation.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/329_pfp.pdfJuly, 2021
Income return contributed to relative performance over the month. The portfolio collected running income in excess of the benchmark across all corporate and collateralioed oectors. Contributiono to income return were broad based, led by non-finaneial corporates, banks and RMBS. The portfolio running yield at month end was i.7% wÌth the spread meaoured at 1.5x.
Credit opread dynamics were mixed for performance. Domestic spreads were rangebound on aggregate, remaining resilient despite increasing COVID-ig concerns. The Fund'o exposure to non-financial corporateo, banks and oecuritised asoets were the main detractors from credit opread return. While the credit outlook remains positive, valuations are looking full and upside in credit spreads is increasingly limited following the extended rally. Ao ouch riok management is paramount. During July, the Manager elected to hedge tail risks by taking a position in a credit default swap index which performed well during the month
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/176282636-1.pdfJune, 2021
The portfolio continued to collect running income in excess of the benchmark. This contribution from positive carry primarily came from non- financial corporates, RMBS and domestic banks. The portfolio running yield at month end was i.65% with the spread measured at 1 so% above the benchmark. Credit spread dynamics were the key contributing factor in outperformance over the month. Credit spreads continued their steady grind tighter during June. Financial spreads outperformed corporates on aggregate. Portfolio allocation to domestic banks, non-financial corporates, and offshore banks were the key contributing sectors to outperformance. Of note, the portfolio’s allocation to Macquarie bank debt was a particularly strong contributor. The manager elected to increase allocation to Macquarie via their June subordinated AUD deal which tightened on issue after meeting robust demand. The manager also elected to increase allocation to a Macquarie US dollar hybrid offering attractive relative value.
Both issues performed well and were substantial contributors to outperformance. The manager was active in primary and secondary markets during the month, deploying a portion of the portfolio’s cash position. The portfolio took part in new deals from AG I Finance and Goldman Sachs group. Credit duration was increased with the manager choosing to increase allocation to longer dated corporate positions. Valuations are stretched in some sectors and the manager remains selective, investing where there are compelling relative value opportunities. Portfolio risk was actively managed throughout June. Allocation to BBB rated issuers was increased while AAA exposures were trimmed.
Meanwhile portfolio exposures were moved up the capital structure, reducing subordinated exposures and increasing the senior allocation. Domestic bank sub debt in particular has performed well recently, and valuations are looking full as the hunt for yield continues. Despite the positive credit outlook, the manager remains selective. With many credit spreads tighter than their pre-COVI D levels, active management is crucial to identifying the remaining pockets of compelling relative value in the credit market.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/174988384.pdfApril, 2021
The portfolio collected running income in excess of the benchmark across all corporate and collateralised sectors. The key contributing sectors to income return were non-financial eorporates, domestic banks and RMBS. The portfolio running yield at month end was 1.7% with the spread measured at 1.6% above the benchmark.
Credit spread tightening was the key contributing factor to outperformance over the month. Credit spreads tightened on aggregate, reflecting strengthening global growth expectations and robust corporate earnings results. Contribution to credit spread return was broad based, led by non- financial eorporates and offshore banks. The recently entered position in Westconnex's inaugural debt raising was the top performing position in the fund over the month. The bonds were purchased outright (unhedged) to establish a long duration position and were sold for a profit as bond yields trended lower during April.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/172126890.pdfDecember, 2020
Income return was a significant contributor to outperformance during December. The portfolio continued to collect running income in excess of the benchmark. This contribution from positive carry primarily came from non-financial corporates, RMBS and domestic banks. The portfolio running yield at month end was 2.09% with the spread measured at 2.04% above the benchmark.
Credit Spread tightening was the key contributing factor in outperformance. Credit spreads continued to tighten although less dramatically than during the November rally. Credit spreads benefitted from improving macro expectations and investor confidence following the US presidential election and COVID vaccine news. Domestic spreads were resilient in late December as travel restrictions were reintroduced to combat the spread of COVID-19 in New South Wales. On aggregate, corporate credit outperformed financial spreads. Portfolio allocations to non-financial corporates and property alongside domestic and offshore banks were the main contributors to outperformance.
Portfolio risk was actively managed throughout the month. Portfolio positioning was consolidated following the strong November rally. The manager took the opportunity to de-risk the portfolio in a number of ways. Allocation to AAA credit and cash was increased. The manager moved up the capital structure, increasing allocation to senior debt. Portfolio weighted average life was also selectively shortened.
Primary issuance was subdued in line with seasonal expectations. The manager took part in new automotive ABS deals from Metro Finance and Pepper. Sector allocation was actively managed with exposure to ABS, Utilities and Non-bank Financials increased while Domestic Banks and non-financial corporate exposures were trimmed. The portfolio remains well positioned with strong defensive attributes while maintaining the capacity to take advantage of relative value opportunities in 2021.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/164029018.pdfasset_class: Fixed Income
asset_category: Diversified Credit
peer_benchmark: Fixed Income - Diversified Credit Index
broad_market_index: Global Aggregate Hdg Index
manager_contact_details: Array
ticker: PER0260AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
https://www.perpetual.com.au/investments/pricing-and-performance?text=per0260au
Download Fund Profile
or:
https://www.perpetual.com.au/~/media/perpetual/fund-profiles/329_pfp.ashx
fund_features:
Perpetual Wholesale Diversified Income aims to provide regular income and consistent returns above the UBS Bank Bill Index over rolling three-year periods (before fees and taxes) by investing in a diverse range of income generating assets. The fund’s approach to delivering returns and managing risk is through an active and risk aware investment process which invests in a diversified core portfolio of liquid investment grade credit securities. When the environment is supportive Perpetual seeks to enhance returns by taking more risk whether that is in maturity, credit rating, subordination or gearing. The fund can also invest in alternative income generating securities such as mortgages, infrastructure debt and private debt. This approach to portfolio construction is Perpetual’s preferred method to deliver investors the highest possible risk adjusted returns.
structure: Managed Fund