September, 2023
The portfolio underperformed the benchmark over September. Australia’s sovereign yield curve steepened over September with the long end rising more than the front end, resulting in negative relative performance against the lower duration bank bill index.
Within Credit management, the portfolio’s overweight position in Australian corporates benefited from the tightening credit spreads over September and the extra yields (“carry”), although not enough to offset the underperformance from duration. Credit spreads widened in the US high yield market, which was a detractor from relative performance.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/ubs_income_solution-2-1.pdfAugust, 2023
The portfolio outperformed the benchmark over August. Australia’s sovereign yield curve steepened over August with the front end declining more than the long end, resulting in positive relative performance against the lower duration bank bill index.
Within Credit management, the portfolio’s overweight position in Australian corporates benefited strongly from the tightening credit spreads over August and the extra yields (“carry”). Credit spreads widened modestly in the US high yield market, which was a small detractor from relative performance
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/ubs_income_solution-1-1.pdfJuly, 2023
The portfolio outperformed the benchmark over July. Australia’s sovereign yield curve steepened over July with the front end declining and the long end rising, resulting in mixed relative performance against the lower duration bank bill index.
Within Credit management, the portfolio’s overweight position in Australian corporates benefited largely from the extra yields (“carry”) as credit spreads tightened modestly over July. Credit spreads tightened in the US high yield market as well, which was also a contributor to relative performance.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/ubs_income_solution-11.pdfJune, 2023
The portfolio underperformed the benchmark over June. Australian Government bond yields sold-off across the term structure, resulting in negative relative performance against the lower duration bank bill index.
Within Credit management, the portfolio’s overweight position in Australian corporates benefited largely from the extra yields (“carry”) as credit spreads tightened modestly and was the biggest contributor to relative performance over June, although insufficient to offset impact from duration. Credit spreads tightened in the US high yield market which was also a contributor to relative performance.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/ubs_income_solution-10.pdfMay, 2023
The portfolio underperformed the benchmark over May.
Australian Government bond yields sold-off across the term structure, resulting in negative relative performance against the lower duration bank bill index.
Within Credit management, the portfolio’s overweight position in Australian corporates benefited largely from the extra yields (“carry”) as credit spreads tightened modestly and was the biggest contributor to relative performance over May, although insufficient to offset impact from duration.
Credit spreads widened in the US high yield market which was also a detractor to relative performance.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/ubs_income_solution-9.pdfApril, 2023
The portfolio outperformed the benchmark over April. Australian Government bond yields rose slightly across the term structure with a flattening bias, resulting in negative relative performance against the lower duration bank bill index.
Within Credit management, the portfolio’s overweight position in Australian corporates benefited largely from the extra yields (“carry”) as credit spreads tightened modestly and was the biggest contributor to relative performance over April, more than offsetting the drawdowns from duration. The tightening credit spreads in the US high yield market was a contributor as well.
File:February, 2023
The portfolio produced positive absolute return but underperformed the benchmark over February. Australian Government bonds sold-off across the curve, thus causing a detraction to the fund’s performance against the lower duration bank bill index.
Within Credit management, the tightening of Australian corporate credit spreads contributed to the portfolio’s relative performance over the month. The tightening credit spreads in the US high yield market contributed to performance as well.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/ubs_income_solution-8.pdfJanuary, 2023
The portfolio outperformed the benchmark over January. Australian Government bonds yields fell at the front end of the curve, resulting in positive relative performance against the lower duration bank bill index. Within Credit management, the tightening of Australian corporate credit spreads contributed to the portfolio’s relative performance over the month. The tightening credit spreads in the US high yield market contributed to performance as well.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/ubs_income_solution-7.pdfDecember, 2022
The portfolio produced positive absolute return but underperformed the benchmark over December. Australian Government bonds sold-off at the front end of the curve, thus causing a detraction to the fund’s performance against the lower duration bank bill index. Within credit management, Australian corporate credit spreads tightened over the month which contributed to the portfolio’s relative performance while widening credit spreads in US high yield market was a small detractor.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/ubs_income_solution-6.pdfNovember, 2022
The portfolio outperformed the benchmark over November. Australian Government bonds yields fell at the front end of the curve, resulting in positive relative performance against the lower duration bank bill index. Within credit management, the tightening of Australian corporate credit spreads over the month contributed positively to the portfolio’s relative performance.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/ubs_income_solution-5.pdfOctober, 2022
Australian sovereign bond yields fell over October as investors remained concerned about the growth outlook. Australian 3- year Government bond yields fell 23bps, ending the month at 3.29% while the 10-year Government bond yield fell 13bps, to end the month at 3.76%. The spread of Australian 10-year Government Bond yields against US 10-year Government bond yields inverted, reaching -29bps from +6bps the month prior, a significant outperformance as US yields continued to rise. Credit spreads widened over the month (Bloomberg AusBond Credit 0+ year index widened from 148bps to 169bps). The Bloomberg AusBond Composite 0+ year index returned 0.93% in October. In early October, the RBA raised the official cash rate target by 25bps to reach 2.60%, a shift from the previous four 50bps hikes. The RBA is aiming to deliver both lower inflation and a soft landing for growth, with their statement noting that they had increased the cash rate 'substantially in a short period of time'. The Board had slowed the pace of hikes in part to 'assess' their impact on the inflation and growth outlook. Given the tight labour market and the upstream price pressures, the Board will continue to pay close attention to both the evolution of labour costs and the price-setting behaviour of firms in the period ahead. Looking forward, the Board commented that ‘further increases are likely to be required over the period ahead’. On the data front, the Q3 CPI print came in above market expectations, with headline inflation printing 1.8% QoQ (7.3% y/y), and the trimmed mean core at 1.8% QoQ (6.1% y/y). Key contributors to the rise were housing (utilities and dwelling construction) and food. There was however, evidence of strong inflation across the rest of the consumer basket. Over the month the 2022-23 October Federal Budget was announced. S&P’s post-Budget announcement noted that from a credit rating perspective, “A humming economy and high commodity prices are delivering a large windfall in today's budget. This windfall should improve fiscal outcomes that underpin our rating on the sovereign (AAA/Stable/A-1+). In line with the better budget projections, the Australian Office of Financial Management (AOFM) revised its bond issuance plan down from AUD125bn to AUD95bn for this fiscal year.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/ubs_income_solution-4.pdfSeptember, 2022
Australian sovereign bonds sold-off across the curve over September in line with moves in offshore bond markets as global investors remained concerned about the inflation outlook and pace of central bank hikes. Australian 3-year Government bond yields rose 32bps, ending the month at 3.52% while the 10-year Government bond yield increased by 29bps, to end the month at 3.89%. The spread of Australian 10-year Government Bond yields against US 10-year Government bond yields tightened versus the prior month with the spread coming in from 41bps to 6bps.
Credit spreads widened over the month (Bloomberg AusBond Credit 0+ year index widened from 137bps to 148bps). The Bloomberg AusBond Composite 0+ year index returned -1.36% in September, driven by both rising treasury yields and spreads widening. In early September, the RBA raised the official cash rate target by 50bps to reach 2.35%, a move that was widely anticipated by market participants.
The tone of the RBA’s Statement aligned with the market’s expectations for further tightening, though there was a hint at slowing down the pace of hikes with text referencing “the full effects of higher interest rates yet to be felt in mortgage payments” and the removal of the description of rate rises as “normalisation.” On the data front, the Westpac consumer confidence survey for September reported a bounce in confidence, with the index printing 3.9%. However, with the index at 84.4, it remains at near historic lows.
The Australian labour market remains extremely tight, with the unemployment rate printing at 3.5% and job growth at 33.5k in August. The Australian Bureau of Statistics also unveiled its new monthly CPI series, which showed headline inflation printing at a historically elevated 6.8% y/y. Yet, market participants are likely to place more weight on the established quarterly series, with the Q3 release due on 26 October, to guide rate hike expectations.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/ubs_income_solution-3.pdfAugust, 2022
The portfolio produced positive absolute return but underperformed the benchmark over August. Australian Government bonds sold-off at the front end of the curve, thus causing a detraction to the fund's performance against the lower duration bank bill index. Within credit management, Australian corporate credit spreads tightened over the month which contributed to the portfolio's relative performance while widening credit spreads in US high yield market was a small detractor.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/ubs_income_solution-2.pdfAugust, 2021
Australian government bond yields reached the lowest levels since February driven by the ongoing emergence of COVID 19 and subsequent lockdowns. In this environment, Australian credit spreads continued to trade with a solid tone with very little volatility seen. Equity markets continue to reach record levels.
The Australian reporting season had little impact on spreads with companies generally reporting growth in revenue and earnings. The primary market was also robust with new issues in both the financials market and nonfinancials. All new deals received good interest from investors. After widening initially at the start of the month US high yield spreads finished tighter which had a positive contribution to performance.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/ubs_income_solution-1.pdfNovember, 2020
After fees and expenses, the portfolio increased by 1.14% over the month, outperforming its benchmark by 113bps. November was a strong month for risk assets with global equities and bonds rallying in the wake of the outcome of the US presidential election and positive news on the development of effective COVID-19 vaccines. Within Fixed Income US 10-year Treasury yields declined immediately following the US election results, then moved higher on vaccine optimism. The Australian bond market underperformed global counterparts given longer-dated Australian government bond yields stepped higher over the month.
Australian 3 year government bond yields initially traded lower but this was short-lived as they retraced to close the month back near where they began at 0.11%. Meanwhile 10 year government bond yields closed the month 7bps higher at 0.90%. Australian credit markets enjoyed a rally with the US election result, positive vaccine news and the reopening of Victoria. The fund delivered positive performance with Australian and global grade credit spreads continuing to contract over November.
Positioning within Australian financials, industrials and utilities all contributed to returns over the month. The fund's small strategic allocation to US short duration high yield securities also added to returns as high yield markets outperformed investment grade credit significantly over the month.
File: https://commentary.quantreports.net/wp-content/uploads/2021/01/ubs_income_solution.pdfticker: UBS0003AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
https://www.ubs.com/content/dam/static/asset_management/australia/factsheets/ubs_income_solution.pdf
manager_contact_details: Array
asset_class: Fixed Income
asset_category: Diversified Credit
peer_benchmark: Fixed Income - Diversified Credit Index
broad_market_index: Global Aggregate Hdg Index
structure: Managed Fund
fund_features:
UBS Income Solution Fund aims to outperform (after management costs) the RBA Official Cash Rate over rolling three year periods. We seek to build the optimal portfolio exhibiting attractive income and risk characteristics and we undertake this by employing both top-down research and bottom-up security specific analysis. The Fund will be managed with the intention of maximizing total return (income plus growth). We aim to hedge foreign currency exposures to the Australian dollar.
- Manager Address : UBS subsidiary in Melbourne , Level 16, 8 Exhibition Street | UBS Australia.
- Phone : +61-3-9242 6100
- Website : https://www.ubs.com/au/en.html