September, 2023
The Sandhurst Strategic Income Fund (Class A units) delivered an annualised return of 5.88% (after fees) through the quarter ending 30 September and has generated an average annual return of 2.79% (after fees) since inception. The Fund continues to outperform its benchmark and the running yield differential to the benchmark of 1.42% at the end of the quarter will support the Fund’s ability to generate income to unitholders.
The domestic credit market exhibited low volatility and outperformed through the quarter whereas global risk assets were generally weaker. Strong services inflation in the US coupled with tight labour markets indicated persistent inflationary pressures which led to an increase in bond yields globally and saw equities underperform.
There were no notable changes to the RBA’s approach to tame inflation through the period despite a stronger than expected monthly CPI print for August. Michelle Bullock replaced Phillip Lowe as the new Governor for the September meeting but the script from the prior meetings was retained. Whilst there has been limited change from the RBA’s rhetoric in recent times, the quarterly inflation reading in addition to updated forecasts from the RBA in November could see shifts in upcoming meetings.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fund-performance-report-september-2023.pdfJune, 2023
The Sandhurst Strategic Income Fund (Class A units) achieved an annualised quarterly return of 4.86% (after fees) for the June quarter. The running yield of the Fund is 1% greater than the benchmark. During the second quarter, credit markets experienced gains, primarily led by the United States, where the technology sector benefited from increased enthusiasm surrounding Artificial Intelligence (AI) stocks. Most major central banks (with the exception of the US Federal Reserve) raised interest rates, resulting in higher government bond yields.
Economic indicators across different regions provided mixed signals, which kept investors focused on forthcoming data releases. Commodities, particularly industrial metals and the energy sectors, faced declines due to concerns of a recession. Australian credit displayed mixed performance. The technology sector outperformed significantly. Utilities, energy, and industrials performed well, bucking offshore trends. Conversely, healthcare, materials, and consumer discretionary sectors experienced losses.
The Australian yield curve inverted last quarter, which potentially signals a recession. However, most investors have downplayed the significance of this inversion. In contrast, the US yield curve is deeply inverted. Short term yields in Australia rose due to higher-thananticipated inflation. Australian credit markets witnessed a healthy level of new issuance that supported the broader market. New deals were oversubscribed leading to a compression of credit spreads. Residential Mortgage-Backed Securities (RMBS) saw a pickup in issuance with $13bn in Australian dollar deals across 21 transactions.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fund-performance-report-june-2023-5.pdfMarch, 2023
The Sandhurst Strategic Income Fund (Class A units) has achieved an annualised quarterly return of 3.52% (after fees) for the March quarter. The Fund saw an increase in returns throughout the March quarter which was reflected in a distribution per unit that was ≈43% greater than the December distribution. Global financial markets at the start of 2023 were characterised by a strong rally across equity and credit markets as an expectation for the Federal Reserve (Fed) to cut rates later in the year gained traction.
Elevated inflationary data and the tight labour markets that were recurring themes in 2022 then returned in February which increased recessionary fears and saw equities retrace some of their January gains. Concerns about a potential banking crisis emerged in early March with the collapse of Silicon Valley Bank (SVB) following deposit outflows after a failed capital raise. The demise of SVB saw depositor confidence plummet and the resulting outflows of Signature Bank deposits saw it become the third largest bank failure in US history. The broader contagion was not just limited to the US as the already beleaguered Credit Suisse became the third casualty in the span of less than a fortnight.
Regulators moved quickly in response by providing guarantees on certain deposits while the Fed supported the liquidity and stability of the banking system by providing access to cheap funding. The Sandhurst Strategic Income Fund did not hold any investments with SVB, Signature Bank or Credit Suisse.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fund-performance-report-march-2023-2.pdfDecember, 2022
The Strategic Income Fund (Class B) achieved an annualised return of 3.28% (after fees) for the quarter ending 31 December and an average annual return of 2.97% (after fees) since inception. The Fund continues to outperform its benchmark and saw an increase in returns throughout the December quarter which was reflected in a distribution per unit that was 30% greater than the prior distribution at the end of September. Global markets experienced a tumultuous 2022 with persistent volatility creating challenging conditions. However, the final quarter of 2022 saw gains on risk assets globally as investors became optimistic on an improving outlook for 2023. A defining moment was the relaxation of China’s zerocovid policy bolstering emerging markets, and other developed regions. The market reacted favourably to a meeting between US President, Joe Biden, and Chinese leader Xi Jinping in November, which signalled the possibility of improving US-China relations.
The UK emerged from its September crisis ending in positive territory. The latter stages of 2022 saw the Eurozone show signs of slowing inflation, mirroring similar trends in the US. Following the softer inflation prints, investors had become hopeful of an easing in monetary policy. Government bond yields were slightly higher at the end of the quarter, reflecting the continued commitment from major central banks to tighten monetary policy to bring inflation back to the ranges of the respective region. Australian equities posted strong performance returning 6.5% outperforming many international markets. Benefitting from China’s pivot on its zero COVID policy, softening inflation and a broad stabilisation in global bonds.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fund-performance-report-december-2022.pdfSeptember, 2022
The Strategic Income Fund (Class B units) has achieved an average annual return for the past two years of 0.78% (after fees) and has generated an average annual return of 2.96% (after fees) since inception. The Fund continues to outperform its benchmark and saw an increase in returns throughout the September quarter which was reflected in a distribution that was 2.8 times greater than the distribution at the end of June. Geopolitical tensions and hawkish central bank actions to combat inflationary pressures saw elevated volatility in credit persist. Rate markets continue to drive directionality in equities as well as credit and the quarter ended with the Bank of England attempting to calm domestic markets to prevent pension funds from collapsing. The start of the quarter had several economic data prints indicating a slowdown in the global economy causing markets to rise briefly over the possibility of an earlier Fed pivot. News from the Jackson Hole Summit in August dashed hopes of a near term pivot from the US Central Bank as Fed Chair Jerome Powell highlighted the Federal Reserve’s commitment to quell inflation. This set the hawkish tone which was later reaffirmed by a worse than expected US CPI report in September. As the quarter progressed, offshore markets were challenged as the ongoing energy crisis in Europe coupled with rising inflation and tightening monetary policy weighed. The UK mini budget announced the biggest of package tax cuts in the region since the early 1970s increasing volatility and resulting in cable falling to an all time low. The fallout required the Bank of England to revert to Quantitative Easing to prevent pension funds from collapsing and has weakened market sentiment.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fund-performance-report-september-2022-5.pdfJune, 2022
The Strategic Income Fund has achieved an average annual return for the past two years of 0.39% (after fees) and has generated an average annual return of 2.68% (after fees) since inception. Over the past quarter, the Fund paid a distribution of 0.0955 cents per unit, equating to 0.382% p.a. but lost some capital value due to market movements to produce a negative return of 0.08% for the quarter. The second quarter of 2022 saw the global growth narrative continue to soften as inflation pressures grew, the war in Ukraine continued, energy crisis expanded, and central banks withdrew accommodative monetary policy. Sustained weakness in equity and bond markets saw the US equity market experience its worst return for the first half in 60 years as a circa 20% decline put the market into bear territory. Other global markets also saw heavy losses on a growing lack of confidence amongst investors.
Inflationary pressures have been a main driver of the negative performance in markets. Consumer price index readings across the globe have registered much higher than anticipated and central banks have struggled to combat the increase in prices. The US Federal Reserve (Fed) became more aggressive in their rate hikes and reset expectations of how high rates could go. The pace and extent of rate hikes built fears of a recession late in the quarter spurring further volatility across markets. The dynamics of the geopolitical.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fund-performance-report-june-2022-3.pdfMarch, 2022
The Strategic Income Fund has achieved an average annual return for the past two years of 1.33% (after fees) and has generated an average annual return of 3.06% (after fees) since inception.
The elevated volatility seen in late February in credit markets persisted in March and liquidity was constrained as Russia’s invasion of Ukraine further fuelled existing inflationary pressures. These developments drove the risk-off theme and widened spreads which resulted in capital losses across credit markets.
Revised expectations for more aggressive monetary tightening in the U.S. to combat inflation (CPI report showed a 12-month rise of 7.9%) and a 25bp increase in the fed funds rate at the FOMC meeting did not weigh on equities as the S&P 500 rose by 5.2% through March. Despite the increase in equities, slower earnings growth, reduced fiscal stimulus from the government, stagflation risks and geopolitical tensions have created uncertainty for global equities moving forward and suggest that the bounce in March could represent a bear-market rally. Comparatively, Australian equity markets outperformed global benchmarks as the ASX 200 rose by 5.7%
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fund-performance-report-march-2022-2.pdfFebruary, 2022
In late February markets saw heightened volatility as geopolitical tensions spiked in relation to Russia’s invasion of Ukraine, prompting a risk-off move in markets. Bond yields also rose as the likelihood of monetary tightening from central banks increased due to elevated inflation. The combination of geopolitical and monetary policy risks pushed credit spreads (the difference between the yield on credit assets and risk-free assets) wider translating to capital losses across credit markets. Commodities prices also soared as the war in Ukraine threatened to push shortages further.
Due to the late-month volatility, the Strategic Income Fund achieved a -0.08% return (after fees) for the month. The return was impacted by capital volatility across credit markets. The Fund has produced a positive return of 0.28% over the 12 months to 28 February 2022. Since inception the Fund has produced an average return of 2.80% p.a.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fund-performance-report-february-2022-5.pdfJanuary, 2022
For the month of January 2022, the Strategic Income Fund achieved a 0.04% (after fee) return for the Class B units. The Fund generated a return over the past year of 0.87% (well above the benchmark) and since inception has delivered an average return of 3.15%.
January saw increased volatility in share markets as the S&P 500 fell by 5.26% and the ASX 200 reduced by 6.35%. There were several headwinds that contributed to the biggest monthly pullback in equities since the depths of the pandemic in March 2020. The main factor that drove the risk-off theme came from the hawkish tone intensifying from the US Federal Reserve (Fed). The December FOMC minutes released early in the month highlighted that rates may rise sooner or at a faster pace to stem inflation (biggest year on year increase in December 2021 since 1982). The minutes also highlighted a desire for a faster pace of quantitative tightening than the last cycle. Geopolitical tensions, slowdown in highfrequency indicators, new COVID variants as well as the continued spread of Omicron also contributed to the fall in markets. By the end of January, the VIX had almost doubled from its mid-month lows, illustrating concerns in equity markets for February.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fund-performance-report-january-2022-5.pdfDecember, 2021
For the month of December 2021, the Strategic Income Fund achieved a -0.05% return for the Class A units. The return was impacted by capital volatility across credit markets over the month. The Fund has generated a return over the past year of 0.60% after fees as well as an average annual return of 2.85% since inception. A global surge in Omicron cases throughout December and a more hawkish tone from the US Federal Reserve threatened the possibility of a weaker end to the year for global share markets. Despite these developments causing unease amongst investors, equity markets finished the year strongly. Driving the performance was the reluctance from governments to impose severe restrictions and lockdowns as seen in prior covid waves. This calmed investor fears that the economic recovery would be derailed by the Omicron wave. Although the hawkish tone intensified from the Federal Reserve, markets rallied following the meeting as positioning prior was seen as too defensive. The S&P 500 posted its third-best month of 2021 (rose 4.36%) while domestically the ASX 200 increased by 2.9%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fund-performance-report-december-2021.pdfNovember, 2021
For the month of November 2021, the Strategic Income Fund achieved a 0.02% return after fees for the Class B units. Over the past 12 months the Fund returned 1.03% after fees. Since inception the Class B units have returned an average of 3.20% per annum.
Volatility picked up in November on the back of a higherthan-expected Consumer Price Index (CPI) data print in several countries. Investors sold off risk assets on the news developing a defensive tone with global equity markets giving back the gains achieved in October. Credit spreads followed with a widening in spreads that caused asset prices to reprice negatively. Financial credits assets in the domestic market moved wider by 2-8 basis points across spectrum and underperformed the wider market.
Exacerbating the volatility was confirmation from the RBA that it would cease its Yield Curve Control (YCC) program that targeted a 0.10% yield for the Australian April-2024 Government bond. The RBA reiterated that it does not see rate hikes before 2023. Market pricing remains disconnected from that view with rate hikes priced for 2022. Investors moved expectations of a rate hike to as early as February 2022 leading to a flattening of the rates curve in Australia through a spike in short term rates and compression in the long end.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fund-performance-report-november-2021.pdfOctober, 2021
For the month of October 2021, the Strategic Income Fund achieved a -0.13% return after fees for the Class B units. Over the past 12 months the Fund returned 1.27% after fees. Since inception the Class B units have returned an average of 3.22% per annum. The third quarter reporting season boosted sentiment in October with more than 80% of companies beating estimates. Risk markets rebounded on the surprise recovering the lost ground from the prior month. Significant headwinds remain omnipresent in markets as monetary policy, inflationary pressures and supply chain issues dampen economic growth.
There was a firmer tone to news flow over the month that subsided some of the events in September that led to weaker markets. Russian gas supplies flowed into Europe calming investor nerves on the developing energy crisis in the Eurozone and China. Constructive discussions and progress were made on lifting the US debt ceiling. Economic data releases were lower than expected with US growth and consumer spending impacted by rising cases of Covid through the middle of the calendar year. The services sector was the main drag. US inflation remains elevated with a 4.0% rise over the last year recorded in October’s print. The US Federal Reserve calmed investors fears of immediate rate rises indicating that they were unlikely to raise rates until the second half of 2022.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fund-performance-report-october-2021-1-1.pdfSeptember, 2021
For the month of September 2021, the Strategic Income Fund achieved a 0.02% return after fees for the Class B units. Over the past 12 months the Fund returned 1.58% after fees.
Markets ended the quarter broadly flat after a weak September. Despite the weakness, risk assets across the developed world still show strong gains for the year. In contrast, emerging markets have struggled after persistent negative news flow from China dragged on market performance. The Chinese government announced private tutoring companies would become non-for-profit organisations. The news unsettled investors who grew concerned with that thinking being applied to other sectors. Additionally, more regulations were announced on the technology sector, including a ban on children playing more than three hours of video games per week. The announcements caused investors to become more circumspect on China’s growth outlook. Further intensifying the caution was the potential default of Evergrande, one of China’s largest property developers.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fund-performance-report-september-2021.pdfAugust, 2021
For the month of August 2021, the Strategic Income Fund achieved a 0.07% return after fees for the Class B units. Over the past 12 months the Fund returned 1.67% after fees.
Global risk markets performed strongly in the month supported by a speech from Federal Reserve chairman Jerome Powell at the Jackson Hole Symposium. A more dovish tone was delivered in the speech which buoyed equity markets in the US particularly, which hit new all-time highs. The optimism overshadowed the surge in COVID-19 delta strain which continues to slow the global economic recovery and stressed supply chains across markets. Business sentiment indicators were impacted due to the rise in cases with the Global Purchasing Managers’ Index for manufacturing falling to 54.1 in August, primarily because of the supply constraints.Domestically, economic releases surprised with the second quarter gross domestic product (GDP) expanding by 0.7% from the prior quarter. Government spending and consumer demand supported the increase. Whilst the result was positive, it only factored in a couple of weeks of the NSW lockdown that is expected to have significant impacts on future GDP prints. The labour market improved with the unemployment rate falling to 4.6%.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fund-performance-report-august-2021.pdfJuly, 2021
For the month of July 2021, the Strategic Income Fund achieved a -0.02% return for the Class A units. The return was impacted by capital volatility in Asset Backed Securities (ABS) over the month. The Fund has provided a return of 1.45% over the past year. Equities in developed markets such as the US continued to see strength. Bond markets in these regions outperformed as yields retreated from previous spikes (prices increase as yields decline). Emerging markets were weaker with announcements from the Chinese government around regulation for several sectors unnerving investors inciting volatility over the month. Adding to the uncertainty was the rising cases of COVID-19 due to the highly contagious Delta variant. Governments have struggled to contain Delta which is threatening the success of the global economic recovery.
Positively, the stability in vaccine rollouts and continued government support for economies has mitigated the risk of COVID-19 significantly impacting markets. Domestically, the virus has remained prevalent in New South Wales with the state lockdown extended. Victoria and Queensland have also had challenges in containing the virus with short lockdowns enforced over the month. Domestic markets were largely immune to the news on COVID-19, and the extension of government support measures calmed investors.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fund-performance-report-july-2021.pdfJune, 2021
For the month of June 2021, the Strategic Income Fund achieved a 0.02% return after fees for the Class B units. For the June 2021 quarter, the Fund paid out distributions representing a 0.46% return bringing the annual return up to 1.79% after fees.
In June, global markets were mixed as positive economic prints conflicted with growing global Covid cases. In the US, investors had to contend with mixed signals from the US Federal Reserve on monetary policy, however the general belief remained the Federal Reserve would not rush to withdraw stimulus. The ongoing fears about higher inflation seemed to subside over the month, as yield curves flattened. Sentiment was bolstered by the US$1.2 trillion bipartisan deal between the White House and the US Senate on infrastructure spending.
Australian domestic economic data releases were strong, with the labour market in particular continuing to show strength with unemployment dropping to 5.3% in the latest release. The strong labour market and buoyant housing market lifted enthusiasm over the month. However, this optimism was impacted by parts of Australia being locked down to control the ongoing Covid outbreak.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fund-performance-report-june-2021.pdfMay, 2021
For the month of May 2021, the Strategic Income Fund achieved a 0.10% return for the Class A units. Projecting the monthly return for the next 12 months would provide an annualised return of 1.19% after fees. Returns were supported by another positive month in credit markets, although income was a larger component of the total return than previous periods.
Global economic data was again positive, but due to the strong start of the year markets were less reactive to the news. Investors have turned their focus to inflationary pressures that have been emerging over the last couple of months. The gradual reopening of economies coupled with large fiscal support from governments has led to higher inflation prints. The debate to whether this is transitory or more permanent has been prominent in the US, with markets concerned that the Federal Reserve will raise rates sooner than expected. Contrary to the growing consensus in markets, the Federal Reserve maintains a view that inflation will be transitory rather than persistent.
In Australia, the highlight event was the May Federal Budget. The Budget was stimulatory and generally well received by markets. There was a significant improvement in underling expectations for 20/21 and 21/22, with smaller deficits and lower overall debt
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fund-performance-report-may-2021-1-1.pdfApril, 2021
April was a stable month for markets. Investors gained confidence in the economic outlook with better-than-expected data releases and more stimulus announcements from the US. However, there was more rationality about the timeframe of the global economic recovery as India suffered through a second wave of the virus. For the month of April 2021, the Strategic Income Fund achieved a 0.31% return after fees for the Class B units (3.77% pa).
Stability continued in bond markets with inflation fears subsiding as Central Banks doubled down on their commitment to supportive monetary policy and the “lower for longer” rhetoric on cash rates. The Biden administration announced a new US $1.8 trillion infrastructure stimulus package, one of the largest in history and economic data globally continued to beat expectations
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fund-performance-report-april-2021.pdfMarch, 2021
March saw stability return to markets after a more volatile month in February. Investors gained more confidence in the outlook with better than expected economic data releases, positive developments on vaccination programs and more stimulus announcements from the US. For the month of March 2021, the Strategic Income Fund achieved a 0.19% return after fees for the Class B units (2.34% pa).
Stability came back to bond markets with inflation fears subsiding as Central Banks globally doubled down on their commitment to supportive monetary policy and the “lower for longer” rhetoric on cash rates. The Biden administration announced a new infrastructure stimulus package, one of the largest in history and economic data globally continued to beat expectations
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fund-performance-report-march-2021.pdfDecember, 2020
December saw another constructive month in fixed income markets and equity markets as risk on sentiment dominated markets. For the month of December 2020, the Strategic Income Fund achieved a 0.08% return for the Class B units (0.93% pa). December was a positive month for global equities as approved Covid-19 vaccines began to be rolled out. Market sentiment was also supported by a new US fiscal package and a Brexit trade deal. US markets rallied over the month with the S&P500 rising 3.7%. Despite European countries being forced into new lockdowns with case numbers rising, the FTSE increased 3.1% in December and the Dax rose 1.0%. In Australia, the ASX200 increased 1.1% on the month. Following the RBA rate cut in November, short dated government bond yields and Bank Bills drifted lower to find new lows in December. December was a relatively quiet month for the Australian credit market. Credit spreads contracted over the month as investors risk appetite continued to improve. As a result, corporates outperformed government bonds during the month. The Fund manager remains cautious and focussed on high quality investments that reduce the volatility of the Fund during market events. Approximately 33.7% of the portfolio is in cash instruments, 31.2% in bank and corporate Floating Rate Notes and 35.1% is in highly rated securitised instruments. There are no unrated or subordinated assets in the Fund and approximately 72.5% of non-cash assets are rated AA- or higher.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/fund-performance-report-december-2020-4.pdfasset_class: Fixed Income
asset_category: Australian Short Term Fixed Interest
peer_benchmark: Fixed Income - Australian Short Term Index
broad_market_index: Australian Bond Bank 0+Y Index
manager_contact_details: Array
ticker: STL0044AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
fund_features:
Sandhurst Strategic Income B aims to outperform the performance benchmark (after fees) over any two year period. The fund seeks to invest in a diversified portfolio of mainly domestic interest bearing securities across a range of maturities. The Fund will adjust its investments in line with our view of prevailing market conditions to optimize returns and control volatility.
structure: Managed Fund