Nikko AM Australian Bond aims to outperform the Bloomberg AusBond Composite 0 YR Index over any three-year rolling period, before fees, expenses and taxes. The Fund is a managed investment scheme that invests in a range of predominantly investment grade Australian fixed interest securities, and cash and short-term securities.
After fees and expenses, the Fund returned -1.56% to underperform the benchmark by 4 basis points (bps).
The fund maintained an overweight duration position throughout the month, at around 0.62-0.64 years. The overweight duration position was the main detractor to the fund’s performance. We look to maintain the overweight duration position in coming months, anticipating lower yields as the Reserve Bank of Australia (RBA) continues to hold interest rates at restrictive territory, dampening growth and bringing down inflation. We may consider reducing the overweight position after yields fall, however we don’t anticipate that to occur in the near term.
The fund’s strategic positioning, which anticipated a yield curve steepening (widening gap between the 3-year bond yield and the 10-year bond yield) contributed positively to the fund’s performance relative to the benchmark. The Fund is overweight the shorter maturities out to 3 years and underweight the 5–10-year bonds. We will also look to reduce this position in coming months if we assess that the yield curve has reached a level of steepness that we consider appropriate given the prevailing market conditions.
Sector positioning favours an overweight in spread, mostly senior financials and Residential Mortgage-Backed securities as well as high grade issuers such as state governments, supranationals and Australian government guaranteed borrowers which have remained attractive relative to government bonds. The slight contraction of spreads this month have also contributed to the fund’s performance.
What is Nikko AM Australian Bond Nikko AM Australian Bond is an Managed Funds investment product that is benchmarked against Australian Bond Composite 0-10Y Index and sits inside the Fixed Income - Bonds - Australia Index. Think of a benchmark as a standard where investment performance can be measured. Typically, market indices like the ASX200 and market-segment stock indexes are used for this purpose. The Nikko AM Australian Bond has Assets Under Management of 223.03 M with a management fee of 0.3%, a performance fee of 0.00% and a buy/sell spread fee of 0.11%.
How has the investment product performed recently?
The recent investment performance of the investment product shows that the Nikko AM Australian Bond has returned 2.95% in the last month. The previous three years have returned -2.6% annualised and 3.62% each year since inception, which is when the Nikko AM Australian Bond first started.
How is risk measured in this investment product?
There are many ways that the risk of an investment product can be measured, and each measurement provides a different insight into the risk present. They can be used on their own or together to perform a risk assessment before investing, but when comparing investments, it is common to compare like for like risk measurements to determine which investment holds the most risk. Since Nikko AM Australian Bond first started, the Sharpe ratio is 0.35 with an annualised volatility of 3.62%. The maximum drawdown of the investment product in the last 12 months is -5.25% and -14.12% since inception. The maximum drawdown is defined as the high-to-low decline of an investment during a particular time period.
What is the relative performance of the investment product?
Relative performance is what an asset achieves over a period of time compared to similar investments or its peers. Relative return is a measure of the asset's performance compared to the return to the other investment. The Nikko AM Australian Bond has a 12-month excess return when compared to the Fixed Income - Bonds - Australia Index of 0.73% and 0.1% since inception.
Does the investment product produce Alpha over its Peers?
Alpha is an investing term used to measure an investment's outperformance relative to a market benchmark or peer investment. Alpha describes the excess return generated when compared to peer investment. Nikko AM Australian Bond has produced Alpha over the Fixed Income - Bonds - Australia Index of 0.02% in the last 12 months and 0% since inception.
What are similar investment products?
For a full list of investment products in the Fixed Income - Bonds - Australia Index category, you can click here for the Peer Investment Report.
What level of diversification will Nikko AM Australian Bond provide?
Nikko AM Australian Bond has a correlation coefficient of 0.98 and a beta of 1.29 when compared to the Fixed Income - Bonds - Australia Index. Correlation measures how similarly two investments move in relation to one another. This establishes a 'correlation coefficient', which has a value between -1.0 and +1.0. A 100% correlation between two investments means that the correlation coefficient is +1. Beta in investments measures how much the price moves relative to the broader market over a period of time. If the investment moves more than the broader market, it has a beta above 1.0. If it moves less than the broader market, then the beta is less than 1.0. Investments with a high beta tend to carry more risk but have the potential to deliver higher returns.
How do I compare the investment product with its peers?
For a full quantitative report on Nikko AM Australian Bond and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Nikko AM Australian Bond with the Australian Bond Composite 0-10Y Index?
For a full quantitative report on Nikko AM Australian Bond compared to the Australian Bond Composite 0-10Y Index, you can click here.
Can I sort and compare the Nikko AM Australian Bond to do my own analysis?
To sort and compare the Nikko AM Australian Bond financial metrics, please refer to the table above.
Has the Nikko AM Australian Bond been independently verified by SMSF Mate?
This investment product is in the process of being independently verified by SMSF Mate. Once we have verified the investment product, you will be able to find more information here.
How can I invest in Nikko AM Australian Bond?
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Comments from SMSF Mates
SMSF Mate does not receive commissions or kickbacks from the Nikko AM Australian Bond. All data and commentary for this fund is provided free of charge for our readers general information.
Performance Commentary - August 31, 2023 After fees and expenses, the Fund returned 0.95% to outperform the benchmark by 22 basis points (bps).
The fund maintained an overweight duration position throughout the month, starting at 0.63 years overweight and ending at 0.64 years overweight. The overweight duration position was the main contributor to the fund’s outperformance. Looking ahead in the coming months, we may consider reducing the portfolio’s duration if yields experience significant declines. However, we do not anticipate such a scenario in the near term.
The fund’s strategic positioning, which anticipated a yield curve steepening (widening gap between the 3-year bond yield and the 10-year bond yield) contributed positively to the fund’s performance relative to the benchmark. The Fund is overweight the shorter maturities out to 3 years and underweight the 5–10-year bonds. We will also look to reduce this position in coming months if we assess that the yield curve has reached a level of steepness that we consider appropriate given the prevailing market conditions.
Sector positioning favours an overweight in spread, mostly senior financials and residential mortgage-backed securities as well as high grade issuers such as state governments, supranationals and Australian government guaranteed borrowers, which have remained attractive relative to government bonds. The slight contraction of spreads this month have also contributed to the fund’s performance
Performance Commentary - July 31, 2023 After fees and expenses, the Fund returned 0.76% to outperform the benchmark by 24 basis points (bps).
The fund held an overweight duration position throughout the month, which was one of the main contributors to outperformance. The fund also saw gains from maintaining a position that anticipated a steeper yield curve (an increase in the difference between the 3-year bond yield and the 10-year bond yield). We would look to decrease duration if yields continue to fall significantly, however we don’t see that occurring in the near term. The Fund is overweight the shorter maturities out to 3 years and overweight 10–15-year government bonds.
Sector positioning favours an overweight in spread, mostly senior financials and Residential Mortgage-Backed securities as well as high grade issuers such as state governments, supranationals and Australian government guaranteed borrowers which have remained attractive relative to government bonds.
Performance Commentary - June 30, 2023 After fees and expenses, the Fund returned -2.10% to underperform the benchmark by 14 basis points (bps).
The fund held an overweight position throughout the month, which was the main contributor to underperformance. The fund increased its position from 0.44 years overweight duration to 0.66 years, on the expectation that we are now towards the end of the rate hiking cycle. If yield do rise again we would look to increase duration further at the top of the recent range in bond yields (around 4-4.1%).
During the month 10-year yields were higher at 4.02%, which was 42 basis points higher over the month. The Fund is overweight the shorter maturities out to 3 years and overweight 10–15-year government bonds.
Sector positioning favours an overweight in spread, mostly senior financials and Residential Mortgage-Backed securities as well as high grade issuers such as state governments, supranationals and Australian government guaranteed borrowers which have remain attractive relative to government bonds.
Performance Commentary - May 31, 2023 After fees and expenses, the Fund returned -1.30% to underperform the benchmark return of -1.21% by 10 basis points (bps) in May.
The Fund maintained an overweight duration position throughout the month, which had a negative impact on its performance. The fund has been holding a core position of approximately 0.40 years overweight duration on the expectation that we are now towards the end of the rate hiking cycle. In the event that yields rise again, we would consider further increasing our overweight duration position at the top of the recent range in bond yields (around 4%). The Fund is overweight the shorter maturities out to 3 years and overweight 10–15-year government bonds.
Sector positioning favours an overweight in credit, mostly senior financials and Residential Mortgage-Backed securities as well as high grade issuers such as state governments and Australian government guaranteed borrowers which have remained attractive relative to government bonds.
Performance Commentary - April 30, 2023 After fees and expenses, the Fund returned 0.29% to outperform the benchmark by 10 basis points (bps).
The Fund held an overweight duration position throughout the month which was neutral for performance as yields rose by only a few basis points on the month. The fund has been holding a core position of approximately 0.50 years overweight duration on the expectation that we are now towards the end of the rate hiking cycle, and yields have peaked.
The main duration positions of the Fund are held in bank bills, 3 year bonds, and 10-15 year government bonds. The Fund currently favours 5-10 year supranational issuers, with a focus on government guaranteed issuers and is overweight Semi-government issuers. The Semi-government position is overweight in the 10-15 year maturities, as the currently wide swap spreads make them attractive versus government bonds.
Credit spreads tightened in April, after widening from the volatility created by the US bank defaults. The Fund held an overweight to credit, which has been focussed in the 0-5 year maturities and is overweight both Banks and Residential Backed Mortgage Securities as there has been little corporate issuance this year. Credit positioning was positive for the month as spread tightening contributed to performance, and further added via the additional running yield of the sector.
Performance Commentary - February 28, 2023 After fees and expenses, the Fund returned -1.38% to underperform the benchmark by 5 basis points (bps). The Fund held an overweight duration position throughout the month which had been reduced in the rally that occurred during January. The fund has been more active with its duration positioning, mainting an overweight position, but reducing its exposure as 3 year yields hit 3% and aiming to extend again at over 3.70%.
We continue to hold an overweight duration position as we believe the RBA is approaching the end of its rate hiking cycle, as the cash rate is now in restrictive territory, which should make any sell-off from these levels harder to achieve. Despite this the RBA continues to keep hiking the cash rate and stating that additional hikes will likely be necessary. During the month 10 year yields sold off to to finish at 3.85%, 30 basis points higher than where they started. The Fund holds a steepening curve positioning, with the majority of its duration exposure in 3 year bonds and bank bills, as the curve is flat. Overall duration was a detractor for the month. The Fund currently favours 5-10 year supranational issuers, with a focus on government guaranteed issuers and is overweight semi-government issuers. The semi-government position is overweight in the 7-15 year maturities, as the currently wide swap spreads make them attractive versus government bonds.
Credit spreads tightened in February, after widening through the second half of 2022. The Fund held an overweight to credit, which has been focussed in the 0-5 year maturities and is overweight Banks as there has been little corporate issuance this year. Credit positioning was positive for the month as spread tightening contributed to performance and provided additional running yield.
Performance Commentary - January 31, 2023 After fees and expenses, the Fund returned 3.10% to outperform the benchmark by 35 basis points (bps). The Fund held an overweight duration position throughout the month which had been extended when the bond market sold off in December. As bonds rallied aggressively in January the duration of the fund was reduced, but still maintained an overweight position. We continue to hold an overweight duration position as we believe the market is pricing a higher terminal cash rate than is possible and as the market approaches the end of the hiking cycle 3 year bonds should find it harder to sell off.
Despite this the RBA continues to keep hiking the cash rate, with inflation printing 7.8% for the 4th Quarter of 2022 giving them the ability to continue moving rates higher if they believe it is necessary. During the month 10 year yields where volatile, rallying aggressively over the month to finish at 3.55%, 52 basis points lower than where they started. The Fund holds a steepening curve positioning, with the majority of its duration exposure in 3 year bonds and bank bills, as the front-end of the bond curve is extremely steep.
Overall duration was a key performer for the month. The Fund currently favours 5-10 year supranational issuers, with a focus on government guaranteed issuers and is square Semi-government issuers. The Semi-government position is overweight in the 7-15 year maturities, as the currently wide swap spreads make them attractive versus government bonds. Credit spreads tightened in January, after widening through the second half of 2022. The Fund held an overweight to credit, which has been focussed in the 0-5 year maturities and was extended through the back end of 2022. Credit positioning was positive for the month as spread tightening contributed to performance and provided additional running yield.
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