WPC1963AU Daintree Core Income Trust

October, 2020

The aim of the Fund is to provide a steady stream of income over the medium term by investing in a diversified portfolio of fixed income securities. The Fund seeks to produce a return (net of fees) that exceeds the RBA Cash Rate by 3%-4% p.a. over a rolling three to fiveyear period.

-Both the US presidential election and falling near-term US fiscal stimulus expectations were the main market drivers in October

- The election is best seen as a binary outcome, with a Democratic clean sweep of the Presidency likely to see significantly higher bond yields and stronger risk asset markets, courtesy of expectations for significant US fiscal stimulus. Any other outcome will see the opposite reaction, with a more significantly negative reaction from risk markets likely in the event of an uncertain result

-Credit spreads narrowed on the month, despite a late shift to less positive risk sentiment

-Despite a continued push higher in US interest rates, Australian bonds outperformed as markets priced a shift on the part of the RBA to full QE mode

September, 2020

Despite the equity rally pausing in the month of September, the third quarter saw notable performance from risk assets. Divergence between US technology stocks and the wider US equity market remained a theme, but encouragingly the breadth of equity market performance increased during the quarter across both geographies and sectors. This ‘risk-on’ environment has been constructive for credit spreads, and as a result the September quarter was a strong one for performance across the Daintree funds. We have remained cautious with respect to our risk-taking, however, as markets remain jittery going into the US election next month. We have increased our allocation to residential mortgage-backed securities slightly, however our interest remains confined to higher-rated tranches with significant structural protections. In our overlay, we have reduced our risk-taking a little in the latter part of the quarter as market volatility increases. We think there is a high likelihood that volatility remains elevated in the coming weeks. We continue to see interest rate markets as offering a poor riskreward trade-off, a view that seems to have been borne out by bond yields in the US moving steadily higher throughout the quarter, and sharply higher in the initial days of October. As we discuss below, we see this as markets pricing a Democratic clean sweep in the coming US elections, which we would see as being a particularly poor outcome for government bond markets.

October, 2020

September, 2020

Fund Managers

Recent Posts