September, 2023
The Core Income Trust returned 0.49% for the month net of fees. The Fund’s performance was supported by coupon income and credit spreads. Duration exposure was kept low which reduced volatility, but the quantum of yield moves still created some drag on performance as yield curves steepened considerably. Overlay was a slight positive contributor for the month.
Credit markets remained resilient amidst the uncertainty created by rising interest rates. Based on recent spread performance, credit investors remain sanguine about the medium-term outlook.
The Fund participated in selected new issuance, identifying opportunities from toll road operators and a range of securitised sectors.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2309_DCIT.pdfAugust, 2023
The Core Income Trust returned 0.83% for the month net of fees.
Overlay was slightly positive for the month, but high coupon receipts combined with a narrowing of credit spreads were the main drivers of returns as credit markets continued their positive year. Economic conditions have exceeded expectations, and this has seen credit spreads tighten. Credit investors, based on recent spread performance, remain sanguine about the short-to-medium term outlook.
The Fund participated in selected new issuance, identifying opportunities from Lloyds Group and a range of securitised sectors.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2308_DCIT.pdfJuly, 2023
The Core Income Trust returned 0.70% for the month, net of fees. The fund’s performance was supported by coupon income and credit spreads.
Credit markets continued their positive year, with economic conditions exceeding expectations and pushing credit spreads tighter.
Credit investors, based on recent spread performance, remain sanguine about the short-to-medium term outlook.
Interest rates were volatile, with the shorter end of the curve rallying as the market debates whether the RBA tightening cycle has now concluded. We believe it is too early to make this determination and keep our duration positioning close to zero.
The Fund did not participate in any new primary issuance in July, having taken significant steps during the first half of the year to reposition toward optimal coupon income generation.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2307_DCIT.pdfJune, 2023
The Core Income Trust returned 0.56% for the month net of fees. The fund’s performance was supported by coupon income and credit spreads. Duration created a modest drag as did overlay and hedging.
Credit markets continued their positive year, with volatility in March quickly absorbed by the larger tightening trend. Spread performance suggests credit investors are sanguine about the short-to-medium term outlook.
Interest rates rose over the month, as rate hikes continue and expectations for further tightening remain priced for the remainder of this year. Having reduced duration toward the beginning of May, the impact on fund performance was minimal.
The Fund continues to prudently add risk, which includes selective participation in primary issuance across corporate and securitised transactions.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2306_DCIT.pdfMay, 2023
The Core Income Trust returned 0.34% for the month, net of fees. The fund’s performance was supported by coupon income and credit spreads. Duration created a modest drag as did overlay and hedging. Credit markets were resilient with spreads holding firm or modestly tightening. A paucity of significant data allowed recent trends to continue, with higher yields enticing a broader investor base.
Interest rates rose over the month, but having reduced duration toward the beginning of May, the impact on performance was minimal. The Fund continues to prudently add risk, which includes selective participation in primary issuance across financial, corporate and securitised transactions.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/2305_DCIT.pdfApril, 2023
The Core Income Trust returned 0.39% for the month net of fees. The fund’s performance was supported by coupon income and credit spreads. Duration created a modest drag while overlay and hedging contributions were positive. Volatility in rates markets subsided in April but remained higher than in recent years.
Incoming economic data remains mixed, but at the margin results are underwhelming market expectations. Yield curves remain inverted but there is growing dispersion between 2yr/10yr and 3m/10yr curves, implying the market is expecting interest rates to be cut as early as this year. We are sceptical that such a scenario will play out during 2023, but we cannot rule out the possibility that short-term interest rate markets are handicapping the possibility of a severe stress event that requires substantial rate cuts.
Difficulties remain among US regional banks, one of the possible sources of a severe stress event. However, even as issues with First Republic Bank play out, recent results have revealed a decidedly mixed picture that, nonetheless, is a little better than feared. We expect the situation to remain fluid in the months ahead. Following our change in risk appetite in January, we continued in April to prudently shift portfolios away from cash and short-dated assets, selectively participating in primary issuance, predominantly in securitised assets where relative value remains attractive.
File:February, 2023
The Core Income Trust returned 0.32% for the month net of fees. The fund’s performance was driven by coupon income and narrower credit spreads. Continued stronger than expected economic data has encouraged investors to contemplate a scenario where growth remains resilient in the face of higher interest rates, scuttling any possibility of a pivot later this year, described as a “no landing”. This was supportive of risk assets that have also benefitted from a short-term liquidity injection on a global basis even as the US Federal Reserve quantitative tightening programme continues.
Sovereign yields at the short- and long-ends rose in response, while yield curves generally inverted further, in some cases to record levels. The improvement in the growth backdrop is supported by various drivers such as the re-opening of China, strength in US consumption that is likely to continue for longer than expected, and the absence of the fiscal drag in the US that featured in 2022.
In Australia too, the reopening of China should support growth. We acknowledge that the RBA may remain hawkish for longer as a result. Following our change in risk appetite in January, we continued to prudently shift portfolios away from cash and short-dated assets, selectively participating in primary issuance in the senior unsecured banking sector where the market technical was supportive, and in securitised assets where relative value remains attractive.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/197705032.pdfDecember, 2022
The Core Income Trust returned 0.75% for the month net of fees. The fund’s performance was positively impacted by coupon income, narrower credit spreads and overlay strategies. The weaker-than-expected US CPI report supported markets, although this was offset by the ECB and Bank of England raising rates and indicating further hikes to come. The Bank of Japan adjustment to its yield curve control program was also a shock to markets amidst illiquid end-of year trading conditions, but the net result was a strong performance for financial issuers, particularly in subordinated paper.
The Australian 10-year bond yield rose by more than 50bp in December, with early January price action moving to reverse this sell off. Our core duration position is zero, and our view remains that inflation momentum will be more difficult to lower than what the markets currently assumes. Given our defensive positioning and continuing modestly bearish outlook for spreads over the medium term, we avoided new issues during the month. We continue to carry larger than normal cash and short-term securities weightings in the fund.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/195721605.pdfNovember, 2022
The Core Income Trust returned 0.54% for the month net of fees. The fund’s performance was positively impacted by both coupon income and narrower credit spreads. We also have hedges in place that underperformed given the relatively ‘risk-on’ tone seen during the month. The Australian market underperformed markets offshore in November, but the overall tone was positive.
More constructive views of the trajectory for the global economy and expectations of less central bank tightening going forward combined with expectations for a reopening of the Chinese economy to support narrower credit spreads. Major bank paper was a stronger performer than other domestic sectors, while globally the strength in credit markets was led by lowerbeta sectors.
Our interest rate position at month end was zero, and our view remains that inflation momentum will be more difficult to lower than what the markets currently assume. This leaves us unconvinced that the recent strength in government bond markets can be sustained. Given our defensive positioning and continuing modestly bearish outlook for spreads over the medium term, we largely avoided new issues during the month. We continue to carry larger than normal cash and short-term securities weightings in the fund.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/193455929.pdfOctober, 2022
The Core Income Fund returned -0.29% for the month net of fees. The fund’s performance was positively impacted by coupon income, but wider credit spreads detracted. We also have hedges in place that underperformed given the relatively ‘risk-on’ tone seen during the month. The Australian market underperformed markets offshore in October. US spreads were a little narrower but in Australia, financials led the way wider as supply weighed. On the other hand, structured credit was more resilient and offshore selling did nothing to widen spreads in either ABS or RMBS. On average, Australian financials credit spreads were approximately 11 basis points wider on the month, whereas nonfinancials were around 3 basis points wider. Our interest rate position at month end was zero. We participated in new LaTrobe and Pepper RMBS deals, but given our defensive positioning and continuing modestly bearish outlook for spreads over the medium term we largely avoided new issues during the month. We continue to carry larger than normal cash and shortterm securities weightings in the fund.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/192842228.pdfSeptember, 2022
The Core Income Fund returned 0.08% for the month net of fees. The fund’s performance was positively impact by coupon income and a modest rally in credit spreads. However, these were offset by a negative contribution from our duration position which was impacted by a meaningful rise in interest rates during the month. A few sectors were positive contributors during the month including Industrials, bank Tier 2 and RMBS. On average Australian and US credit spreads were approximately four basis points tighter on the month, both significantly outperforming EUR spreads which were fifteen basis points wider. Our interest rate position at month end continued to be modest at 0.25 years. Given our defensive positioning and continuing modestly bearish outlook for spreads over the medium term, we largely avoided new issues during the month. We did however participate in some of the new RMBS deals including Triton and Think Tank, but otherwise we continue to carry larger than normal cash and short-term securities weightings in the fund.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/190936812-1.pdfAugust, 2022
The Core Income Fund returned 0.08% for the month net of fees. The fund’s performance was positively impact by coupon income and a modest rally in credit spreads. However, these were offset by a negative contribution from our duration position which was impacted by a meaningful rise in interest rates during the month. A few sectors were positive contributors during the month including Industrials, bank Tier 2 and RMBS.
On average Australian and US credit spreads were approximately four basis points tighter on the month, both significantly outperforming EUR spreads which were fifteen basis points wider. Our interest rate position at month end continued to be modest at 0.25 years. Given our defensive positioning and continuing modestly bearish outlook for spreads over the medium term, we largely avoided new issues during the month. We did however participate in some of the new RMBS deals including Triton and Think Tank, but otherwise we continue to carry larger than normal cash and short-term securities weightings in the fund.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/190936812.pdfJuly, 2022
The Core Income Fund returned -0.32% for the month net of fees. The fund’s performance was negatively impacted by wider credit spreads and a negative contribution from overlay and hedging strategies which more than offset coupon income and positive contributions from duration positioning. Most sectors were negative contributors, but there was particular weakness in RMBS and ABS sectors as new primary issuance into soft markets caused the entire sector to reprice wider. On average Australian credit spreads were approximately five basis points tighter on the month, while the US market was eleven basis points tighter. We have started to increase our core duration position in the fund, with the fund carrying 0.5 years of duration at month end. Given our defensive positioning and continuing modestly bearish outlook for spreads, we largely avoided new issues during the month. We did participate in some of the new RMBS deals in the market; but are still carrying larger than normal cash balances.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/189909801.pdfJune, 2022
The Core Income Fund returned -0.38% for the month net of fees. The fund’s performance was negatively impacted by wider credit spreads which more than offset coupon income and a substantial contribution from our overlay and hedging strategies. All sectors widened on the month, but the corporate sector was the largest detractor. On average Australian and US credit spreads were approximately twenty-three basis points wider on the month, but both markets substantially outperformed European spreads which were out approximately fiftyfive basis points. The core duration position in the fund remained flat as at month end.
Given our defensive positioning and continuing bearish outlook for spreads, we largely avoided new issues during the month. Having said that supply was limited locally which helped spread performance relative to offshore markets. We did, however, start to spend some of our excess cash on short-dated corporate and financial assets. The near-term outlook remains considerably uncertain, with intraweek volatility being exacerbated by lower trading volumes brought on by the northern hemisphere summer.
Central banks are quickly gaining ground in their bid to collar inflation, but their actions still feel more about catching pace with prices rather than having any real influence on their moderation. The more pressing issue, voiced recently by Federal Reserve Chairman Jerome Powell, is ensuring that inflation expectations remain anchored. He went so far as to say that “The Fed would restore price stability even at the risk of raising interest rates too high”. Breakeven rates and inflation forwards peaked in late April and have subsequently fallen by an average of half a percentage point, suggesting that the financial markets believe the Fed can return inflation to desired levels. Similar trends are evident in Europe, the UK and Australia, with local breakeven rates back to levels prior to Russia’s invasion of Ukraine
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/189094301.pdfJanuary, 2022
The Core Income Fund returned 0.04% for the month bringing the rolling three-year performance to 2.37% net of fees. The fund’s performance was negatively impacted by wider credit spreads and higher bond yields, however that was offset by coupon income and overlay trades to produce a slightly positive return for the month. Credit spreads were wider across most sectors, however RMBS/ABS held in relatively well. The fund continues to have a very modest neutral interest rate duration positioning of 0.30 years. New issuance in Australia remained very modest, however the pipeline is ramping up with multiple deals announced including Liberty Auto, AFG, Metro ABS, Mortgage House and Bank of Nova Scotia.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/183913779.pdfDecember, 2021
The Core Income Fund returned 0.17% for the month bringing the rolling three-year performance to 2.45% (1.88% above cash). The fund’s performance was aided by narrower credit spreads and coupon income, with interest rate positioning a small detractor. Credit spread movements were relatively minor with some modest widening in corporates and RMBS, while subordinated financials were tighter. The fund continues to have a very modest interest rate duration positioning of 0.27 years.
No surprise that new issuance slowed down during the month. There were no new RMBS transactions for the fund, however we did participate in the Computershare 2027 transaction. Given the illiquidity going into year-end, we have left cash levels modestly elevated.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/182657236.pdfNovember, 2021
Credit spreads widened on the month, detracting from performance
➢ Duration positioning was a positive offset to wider credit spreads, but nonetheless the funds return for the month was slightly negative
November saw a continuation of volatility in interest rate markets. Although the relentless rise in bond yields seen in October did not continue, it took the risk-off sentiment surrounding Omicron to push bond yields decisively lower. This same sentiment saw credit spreads pushing wider.
Lower bond yields were not universal; for example, the US 2-year yield continued to see significant upward pressure. Investors remain uncertain as to the severity of US inflation, the likely policy response, the extent of the subsequent slowdown in US demand and the severity of global spillovers. Such uncertainty will linger for some time, and this is driving a significant uptick in the volatility of government bond markets globally. Interestingly, with expectations now heightened that the Fed will taper asset purchases more quickly than expected, US yield curve flattening pressure has also increased. This means investors are increasingly starting to focus not just on the nearer-term trajectory for monetary policy, but also on the level and timing of the end of the current monetary cycle. This part of the cycle is usually where financial asset returns become more volatile, and the faster-than-expected removal of price-insensitive quantitative easing will exacerbate this pressure. We keep a close eye on US real yields as these remain at deeply negative levels but, we feel, susceptible to upward pressure in 2022. If we are correct in this view, higher real yields will reduce the value of the future cash flows across the spectrum of financial assets
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/181788863.pdfOctober, 2021
The Core Income Fund returned -0.40% for the month bringing the rolling twelve-month performance to 1.68% net of fees. The fund’s performance was significantly impacted by the selloff in government bonds which led to a negative 0.69% impact to the fund, which more than offset positive contributions from coupon, credit spreads and overlay strategies. Sector performance was mixed as corporate spreads were generally tighter while subordinated financial spreads were wider. The fund continues to have a modest interest rate duration positioning at 0.58 years.
October was another busy month of securitisation issuance with ten transactions pricing. We participated in a number of new deals during the month including AFG 2021-2, Light Trust 2021-1, Athena 2021-1, Brighte Green 2021-1, and Flexicommercial 2021-2 transactions. Corporate and financial issuance was relatively modest, but we did participate in the Investa Commercial Property Fund 2030 transaction
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/180946241.pdfSeptember, 2021
The Core Income Fund returned -0.18% for the month bringing the rolling twelve-month performance to 2.43% net of fees. During the month, both duration and credit spreads were negative contributors which more than offset coupon income. Most sectors in the portfolio were negative but RMBS/ABS and subordinated financials were the largest negative contributors. Broader Australian credit spreads were very mixed across sectors and tenors. Energy names performed better than most on the back of higher energy prices. The Fund continues to have a modest interest rate duration positioning at 0.45 years.
RMBS/ABS issuance was healthy with seven new deals pricing during the month totaling $4.3 billion, including the first RMBS deal from a major bank since 2020, as Westpac priced a new deal. Total issuance by corporates and financials was $3.7 billion during the month. Issuance continues to remain below maturity levels with net issuance at -$22.8b year to date. This strong technical has helped overall spreads remain relatively stable despite weakness seen in some offshore markets. We participated in several new deals during the month including Woolworths SLB 2027, Zip 2021-2, Allied 2021-1, Shopping Centre Australia 2029, Dexus Property 2028 and Electranet 2028.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/179879871.pdfJune, 2021
The June quarter was dominated by Fed rhetoric, and the same may be the case this quarter given the proximity of the Jackson Hole Symposium. Despite the volatility immediately after the announcement, however, the backdrop for markets has been and remains a ‘risk-on’ one. Credit assets have done well against this backdrop, and as a result the fund saw positive performance for both the month and the quarter. Coupon income and credit spread contraction were the main sources of these returns. Overlay performance was slightly down on the month but positive for the quarter – duration and yield curve positioning detracted value here, but this effect was more than offset by positioning in other strategies.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/175102827.pdfApril, 2021
April saw sovereign bonds turn around the poor performance of recent months, with yields mostly falling over the course of the month. Locally, a weak CPI overshadowed other data and led to some changes to market expectations as to RBA policy moves. Credit spreads were mostly tighter in keeping with the broader positive tone for markets. Non-financial credit was the standout performer, and higher beta exposures led the move tighter. Overlay performance was a small positive for the month, driven by duration positioning as well as currency strategies
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/172227495.pdfDecember, 2020
The final quarter of the year was defined by the notable performance of risk assets. This translated to credit markets, particularly in the month of November which saw a notable move narrower in credit spreads across sectors. Credit spread compression was therefore the main driver of fund performance for the quarter, with financial names moving first and non-financial names following in the latter part of the quarter.
A little value was detracted by our core duration position (0.4 years) as yields rose. We believe yields may rise a little further from current levels during 2021, but such increases are likely to be limited by central bank purchase programs.
File: https://commentary.quantreports.net/wp-content/uploads/2021/02/163986307.pdfasset_class:
asset_category:
peer_benchmark:
broad_market_index:
manager_contact_details: Array
ticker: WPC1963AU
release_schedule: Monthly
commentary_block: Array
factsheet_url:
https://daintreecapital.com.au/daintree-core-income-trust/
fund_features:
Daintree Core Income Trust aims to provide a steady stream of income and capital stability over the medium term, by investing in a diversified portfolio of credit fixed income securities and cash, and to provide a total return (after fees) that exceeds the Benchmark measured throughout a market cycle. Daintree applies a pragmatic and risk averse approach to managing a portfolio of global fixed income securities. The Trust targets an absolute return (greater than cash) over time, by investing in a diversified portfolio of predominantly global investment grade credit securities which meets Daintree’s investment standards. In managing the portfolio, Daintree applies a range of strategies that include duration and yield curve management, (actively managing the maturity profile of the portfolio), sector rotation and individual security selection. All securities must carry a Standard & Poor’s rating (or equivalent) of BB- or higher at the time of purchase. The Trust invests in non-Australian denominated securities which may be fully or partially hedged back to the Australian Dollar.
structure: Managed Fund