Realm High Income – Wholesale (OMF0009AU) Report & Performance

What is the Realm High Income – Wholesale fund?

Realm High Income – Wholesale’s objective is to deliver a consistent return of approximately 300 basis points over the RBA overnight cash rate through the market cycle. Approximately 75% of the Fund will be targeted at investment grade assets. These are assets which are considered entities and/or securities that have an internal or external credit rating of BBB- or higher. Issuers of investment grade securities are considered to have a strong capacity to meet their payment obligations (although no guarantee can be given about this matter).

Growth of $1000 Investment Over Time

Performance Report

Peer Comparison Report

Peer Comparison Report

Latest News & Updates For Realm High Income – Wholesale

Realm High Income – Wholesale Fund Commentary September 30, 2023

Cash and Short-Term Liquidity Weighting: ↑ The allocation to highly liquid assets (cash, commercial paper and government bonds) increased from 7.91% to 9.63%. This mainly reflected lower allocations to T1 capital, corporate bonds and corporate hybrids; which was partly offset by increased allocations to ABS.

Corporate & Subordinated Debt Allocation: ↓ Weighting to corporate bonds and subordinated debt (corporate hybrids and T2 capital) decreased from 42.49% to 40.35%. A tale of two halves in global credit with credit spreads firmer over the first half of September before closing wider month-on-month as concerns over higher government bond yields and rates volatility came to the fore. In the first half, the fund took profits into firmer markets, reducing allocations to EUR denominated corporate bonds and corporate hybrids; this has since been reallocated to USD denominated T2 capital in the start of October on the wider credit spread bias. Domestically, credit spreads remained resilient and continued to firm over the month. In terms of new issuance there was a range of deals from Australian corporates, including Westpac, Suncorp T2 and WestConnex in AUD, and Santos, NBN and BHP in USD.

Interest Rate Duration Position: ↑ IRD positioning increased from 0.86 to 1.00 years. Positioning reflected the continued sell-off in global government bond rates. Nominal yield increases were matched by real yield rises – reflecting the resilient global economic data releases. Market sentiment reflected the investors’ acceptance of central bank commentary of higher cash rates for longer. Further hawkish comments by global central banks only pointed to potential upside risks for further tightening. While monetary policy decisions in AUS, US and UK saw cash rates steady, the ECB tightened by 0.25%. In addition to terminal cash rates increasing over the month, the extent and timing of rate cut expectations were delayed, contributing to steepening yield curves. Consequently, our IRD positioning reflected overall moves and sentiment.

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Product Snapshot

  • Product Overview
  • Performance Review
  • Peer Comparison
  • Product Details

Product Overview

Fund Name APIR Code
? A Product Code is unique a identifier code issued by a group or governing body, to reference products in a large group. For an example, APIR codes are commonly used for Funds and Ticker codes are commonly used for Securities such as ETFs and Stocks.
Structure
?
Asset Class
? An Asset Class breakdown provides the percentages of core asset classes found within a mutual fund, exchange-traded fund, or another portfolio. Asset classes (in microeconomics and beyond) generally refer to broad categories such as equities, fixed income, and commodities.
Asset Category
? An Asset Category is a grouping of investments that exhibit similar characteristics and are subject to the same laws and regulations. Asset categories (or a sub-asset class) are made up of instruments which often behave similarly to one another in the marketplace, looking down to the Asset Category level is important if looking to build a diversified portfolio.
Peer Benchmark Name
? A Peer Index (benchmark) refers to a peer group of investment managers who have the same investment style or category. It is used to compare the performance of one manager to their peer group, which makes it simpler for investors to choose between the vast number of investment managers.
Broad Market Index
? A Market Index (benchmark) refers to a hypothetical portfolio of investments that represents a segment, asset or category of an investable market. Market Indices are used to benchmark managers performance, to assist their style reliability and ability to provide excess returns.
FUM
? Funds/Assets under management (AUM) is the total market value of the investments that a person or entity manages on behalf of clients. Assets under management definitions and formulas vary by company.
Management Fee
? A management fee is a charge levied by an investment manager for managing an investment fund. The management fee is intended to compensate the managers for their time and expertise for selecting finanical products and managing the portfolio.
Performance Fee
? A performance fee is a payment made to an investment manager for generating positive returns. This is as opposed to a management fee, which is charged without regard to returns. A performance fee can be calculated many ways. Most common is as a percentage of investment profits, often both realized and unrealized. It is largely a feature of the hedge fund industry, where performance fees have made many hedge fund managers among the wealthiest people in the world.
Spread
? A spread can have several meanings in finance. Basically, however, they all refer to the difference between two prices, rates or yields. In one of the most common definitions, the spread is the gap between the bid and the ask prices of a security or asset, like a stock, bond or commodity. This is known as a bid-ask spread.
Realm High Income – WholesaleOMF0009AUManaged FundsFixed IncomeDiversified CreditFixed Income - Diversified Credit IndexGlobal Aggregate Hdg Index944.50 M0.72%00.09%

Performance Review

Fund Name Last Month
? Returns after fees in the most recent (last) month).
3 Months Return
? Returns after fees in the most recent 3 months.
1 Year Return
? Trailing 12 month returns.
3 Years Average Return
? Average Annual returns from the last 3 years.
Since Inc. Average Return
? Average (annualised) returns since inception
1 Year Std. Dev. (Annual)
? The standard deviation (or annual volatility) of the last 12 months.
3 Years Std. Dev. (Annual)
? The average standard deviation (or annual volatility) from the last 3 years.
Since Inc. Std. Dev. (Annual)
? The average standard deviation (or annual volatility) since the fund inception.
1 Year Max Drawdown
? The maximum drawdown in the last 12 months - a drawdown is a peak-to-trough decline during a specific period for an investment, trading account, or fund.
3 Year Max Drawdown
? The maximum drawdown in the last 36 months - a drawdown is a peak-to-trough decline during a specific period for an investment, trading account, or fund.
Since Inc. Max Drawdown
? The maximum drawdown since inception - a drawdown is a peak-to-trough decline during a specific period for an investment, trading account, or fund.
Realm High Income – Wholesale1.08%2.7%12.29%5.66%4.91%2.14%3.14%1.99%-0.09%-3.36%-3.36%

Peer Comparison

Fund Name Peer Index Name
? A group of individuals who share similar characteristics and interests are called peer groups. Peer group analysis is an essential part of assessing a price for a particular stock in investment research. The emphasis here is on making a comparison, meaning that the peer group constituents should be more or less identical to the company being examined, especially in terms of their main business and market capitalization areas.
12 Months Excess Return
? Excess returns are an important metric that helps an investor to gauge performance in comparison to other investment alternatives. In general, all investors hope for positive excess return because it provides an investor with more money than they could have achieved by investing elsewhere.
Excess Return Annualised Since Inception
? Excess returns are an important metric that helps an investor to gauge performance in comparison to other investment alternatives. In general, all investors hope for positive excess return because it provides an investor with more money than they could have achieved by investing elsewhere.
12 Months Alpha
? Alpha is used in finance as a measure of performance, indicating when a strategy, trader, or portfolio manager has managed to beat the market return over 12 months. Alpha, often considered the active return on an investment, gauges the performance of an investment against a market index or benchmark that is considered to represent the market’s movement as a whole.
Alpha Annualised Since Inception
? Alpha is used in finance as a measure of performance, indicating when a strategy, trader, or portfolio manager has managed to beat the market annualized since inception. Alpha, often considered the active return on an investment, gauges the performance of an investment against a market index or benchmark that is considered to represent the market’s movement as a whole.
12 Months Beta
? Rolling 12Month Beta is a measure of the volatility—or systematic risk—of a security or portfolio compared to the market as a whole. Beta is used in the capital asset pricing model (CAPM), which describes the relationship between systematic risk and expected return for assets (usually stocks).
Beta Annualised Since Inception
? Beta is a measure of the volatility—or systematic risk—of a security or portfolio compared to the market as a whole. Beta is used in the capital asset pricing model (CAPM), which describes the relationship between systematic risk and expected return for assets (usually stocks).
12 Months Tracking Error
? 12Month Tracking error is the difference in actual performance between a position (usually an entire portfolio) and its corresponding benchmark over the last 12 months. The tracking error can be viewed as an indicator of how actively a fund is managed and its corresponding risk level. Evaluating a past tracking error of a portfolio manager may provide insight into the level of benchmark risk control the manager may demonstrate in the future.
Tracking Error Since Inception
? Since Inception tracking error is the difference in actual performance between a position (usually an entire portfolio) and its corresponding benchmark since inception. The tracking error can be viewed as an indicator of how actively a fund is managed and its corresponding risk level. Evaluating a past tracking error of a portfolio manager may provide insight into the level of benchmark risk control the manager may demonstrate in the future.
12 Months Correlation
? Correlation, in the finance and investment industries, is a statistic that measures the degree to which two securities move in relation to each other. Correlations are used in advanced portfolio management, computed as the correlation coefficient, which has a value that must fall between -1.0 and +1.0.
Correlation Since Inception
? Correlation, in the finance and investment industries, is a statistic that measures the degree to which two securities move in relation to each other. Correlations are used in advanced portfolio management, computed as the correlation coefficient, which has a value that must fall between -1.0 and +1.0.
Realm High Income – WholesaleFixed Income - Diversified Credit Index5.7%1.59%NA%NA%NA%0.81.36%1.4%0.820.76

Product Details

Fund Name Verifed by SMSF Mates Manager Address Phone Website Email
Realm High Income – WholesaleYes-https://realmim.com/-

Product Due Diligence

What is Realm High Income – Wholesale

Realm High Income – Wholesale is an Managed Funds investment product that is benchmarked against Global Aggregate Hdg Index and sits inside the Fixed Income - Diversified Credit 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 Realm High Income – Wholesale has Assets Under Management of 944.50 M with a management fee of 0.72%, a performance fee of 0 and a buy/sell spread fee of 0.09%.

How has the investment product performed recently?

The recent investment performance of the investment product shows that the Realm High Income – Wholesale has returned 1.08% in the last month. The previous three years have returned 5.66% annualised and 1.99% each year since inception, which is when the Realm High Income – Wholesale 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 Realm High Income – Wholesale first started, the Sharpe ratio is NA with an annualised volatility of 1.99%. The maximum drawdown of the investment product in the last 12 months is -0.09% and -3.36% 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 Realm High Income – Wholesale has a 12-month excess return when compared to the Fixed Income - Diversified Credit Index of 5.7% and 1.59% 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. Realm High Income – Wholesale has produced Alpha over the Fixed Income - Diversified Credit Index of NA% in the last 12 months and NA% since inception.

What are similar investment products?

For a full list of investment products in the Fixed Income - Diversified Credit Index category, you can click here for the Peer Investment Report.

What level of diversification will Realm High Income – Wholesale provide?

Realm High Income – Wholesale has a correlation coefficient of 0.76 and a beta of 0.8 when compared to the Fixed Income - Diversified Credit 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 Realm High Income – Wholesale and its peer investments, you can click here for the Peer Investment Report.

How do I compare the Realm High Income – Wholesale with the Global Aggregate Hdg Index?

For a full quantitative report on Realm High Income – Wholesale compared to the Global Aggregate Hdg Index, you can click here.

Can I sort and compare the Realm High Income – Wholesale to do my own analysis?

To sort and compare the Realm High Income – Wholesale financial metrics, please refer to the table above.

Has the Realm High Income – Wholesale 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 Realm High Income – Wholesale?

If you or your self managed super fund would like to invest in the Realm High Income – Wholesale please contact via phone or via email .

How do I get in contact with the Realm High Income – Wholesale?

If you would like to get in contact with the Realm High Income – Wholesale manager, please call .

Comments from SMSF Mates

SMSF Mate does not receive commissions or kickbacks from the Realm High Income – Wholesale. All data and commentary for this fund is provided free of charge for our readers general information.

Historical Performance Commentary

Performance Commentary - August 31, 2023

Cash and Short-Term Liquidity Weighting: ↓ The allocation to highly liquid assets (cash, commercial paper and government bonds) decreased from 13.84% to 7.91%. This mainly reflected increased allocations to T2 capital, corporate bonds and corporate hybrids; which was partly offset by lower allocations to T1 capital.

Corporate & Subordinated Debt Allocation: ↑ Weighting to corporate bonds and subordinated debt (corporate hybrids and T2 capital) increased from 36.59% to 42.49%. Global credit markets softened over the month, partially unwinding some of the solid credit spread performance achieved two months earlier. In contrast, domestic credit markets continued to firm over the month, despite the modest pickup in new issuance. Improved relative value in offshore markets provided the opportunity to increase allocations to Australian corporate bonds and subordinated debt denominated in USD and EUR. The fund also participated in a new green corporate hybrid deal from Volkswagen in EUR which has performed very strongly in secondary trading. Domestically, notable new deals include senior unsecured bonds from Westpac, CBA, ANZ and NBN Co, and T2 capital from UK Bank Lloyds.

Interest Rate Duration Position: ↑ IRD positioning increased from 0.82 to 0.86 years. Intra-month IRD positioning was actively managed to take advantage of the volatility in the rates market. The trading range of the US 10-year government bond was higher than the Australian counterpart and as such our trading activity was skewed towards the US. Overall, both markets ended the month higher than where they began and consequently our positioning also increased. Global bond markets were driven by strong economic data, however, volatility sharply increased following a relatively weaker interest in US primary bond issuance. Global inflation continues to trend downwards, but services inflation proves to be stubborn. Concerns around China’s economy and their property sector remained elevated, while the lack of official stimulus compounded the sentiment.

Residential Mortgage-Backed Securities (RMBS): ↑ Weighting to RMBS securities decreased from 18.02% to 18.32% over the month. Public structured credit market yields continued to tighten over the month of August, with the strong offshore bid maintained in the senior and higher rated mezzanine tranches. Margins across lower credit grade portions of the capital structure also tightened, especially around the A and BBB rated tranches, as investors began to compete for supply as margins continued to tighten. Issuers continue to utilise the cheaper funding margins to issue transactions at more economic levels. This has led to a large number of new transactions seeking to price over the period across a wide range of subsectors including regional bank trades, both prime and non-conforming RMBS, and asset backed securities.

With respect to market performance, Prime arrears as reported by S&P’s SPIN index improved 1bp over the month of July to 0.96%. Nonconforming arrears weakened slightly, widening 16bps to 3.63%. Both results remain very strong in comparison to both market expectations and historic index levels.

Performance Commentary - July 31, 2023

Cash and Short-Term Liquidity Weighting: ↑ The allocation to highly liquid assets (cash, commercial paper and government bonds) increased from 12.15% to 13.84%. This reflected lower allocations to corporate bonds, bank T1 and ABS public; which was partly offset by higher allocations to bank T2 and ABS private.

Corporate & Subordinated Debt Allocation: ↓ Weighting to corporate bonds and subordinated debt (corporate hybrids and bank T2) decreased from 37.00% to 36.59%. July was a solid month for global credit as the risk sentiment continued to strengthen. This was partly attributed by the improved macroeconomic outlook in the US and positive developments in the US regional banking sector. As such, Financial sector credit spreads outperformed as they continue to recover post the March banking crisis, with ongoing strong outperformance from bank capital instruments (T2 and AT1). Noteworthy global issuance included a senior deal from Fifth Third Bancorp — the first issuance from a pure US regional bank since the collapse of Silicon Valley Bank — which has performed very strongly in secondary markets. Domestically, improved risk sentiment and muted new issuance saw credit spreads firm over the month, with notable outperformance from bank T2.

Interest Rate Duration Position: ↑ IRD positioning increased from 0.70 to 0.82 years. Volatility was divergent between Australian and US government bonds, with the trading range in the Australian 10 year remaining meaningfully higher than the US. During the month, the respective 10-year government bonds reached decade highs before contracting. Drivers of government bond volatility included a hawkish fed and a surprisingly strong ADP employment report. A weaker than expected inflation print and a cash rate increase of 0.25% as expected, led to the retracement of US bonds. Australian inflation was slightly lower than expected but printed a strong unemployment rate of 3.5%. However, the biggest driver of Australian bond volatility was the Bank of Japan’s decision to increase the Yield Curve Control band of the 10-year bond to maximum of 1%. IRD positioning was influenced by these events.

Residential Mortgage-Backed Securities (RMBS): ↓ Weighting to RMBS securities decreased from 18.38% to 18.02% over the month. Public structured credit market yields began to tighten over the month of July, with reports of a strong offshore bid returning to the market. This was especially prevalent in the senior portions of the capital structure in prime transactions, with the bid tightening credit margins across the sector. Tighter yields continue to make transaction more economic for issuers, leading to a substantial amount of primary deal flow looking to price in markets over the next month, including several regional bank trades, along with both prime and non-conforming RMBS.

With respect to market performance, Prime arrears as reported by S&P’s SPIN index improved 3bps over the month of June to 0.97%. Nonconforming arrears also improved, tightening 16bps to 3.47%. Both results remain very strong in comparison to both market expectations and historic index levels.

Performance Commentary - June 30, 2023

Cash and Short-Term Liquidity Weighting: ↑ The allocation to highly liquid assets (cash, commercial paper and government bonds) increased from 9.77% to 12.15%. This largely reflected lower allocations to ABS, RMBS and bank T1; partly offset by higher allocations to bank T2.

Corporate & Subordinated Debt Allocation: ↑ Weighting to corporate bonds and subordinated debt (corporate hybrids and bank T2) increased from 35.15% to 37.00%. The improved risk sentiment saw global credit spreads firm over the month, with bank capital instruments (T2 and AT1) continuing to outperform. The exception was GBP assets which underperformed due to macroeconomic concerns from high inflation. The silver lining was Lendlease buying back £125 million of their senior unsecured Sterling bond maturing in 2033 – a high conviction line in the portfolio – at a premium of more than 10% to market value. Domestically, risk sentiment and credit spreads were also firmer which resulted in solid outperformance from new issuance. Notable new deals include T2 issuance from Westpac and QBE and corporate issuance from Endeavour Energy and Australian Gas Infrastructure Group. New deal participation resulted in increased allocations to T2’s.

Interest Rate Duration Position: ↑ IRD positioning increased from 0.32 to 0.70 years. Economic data releases highlighted the strength of global economies. Most notable was the accelerating UK inflation figure in addition to a strong employment report. Australian unemployment decreased unexpectedly to 3.6%, while the fair work commission increased the minimum award wages by 5.75%. The 3rd estimate of the US GDP came in higher than expected, revealing the resilient economy. The FOMC paused rate hikes, but with a hawkish stance. Remaining global central banks hiked rates with the RBA, BoC and BoE surprising the market to varying degrees. Consequently, Australian government bond rates underperformed US and ended the month breaching 4%. In line with market movements, IRD positioning of the fund was increased accordingly.

Residential Mortgage-Backed Securities (RMBS): ↓ Weighting to RMBS securities decreased from 19.32% to 18.38% over the month. Public structured credit market yields remained in line over the month of June, after having tightened at the end of May as foreign investor interest started to return. The tightening in yields makes issuing transactions more economic for issuers. This has bought more primary deal flow to public markets including two new bank transactions, and several nonconforming and CMBS transactions.

Secondary markets remain moderately active, with good transaction volume reported from each of the broking desks. With respect to market performance, Prime arrears as reported by S&P’s SPIN index weakened 6bps over the month of April to 1.01%. Nonconforming arrears also weakened slightly, increasing 3bps to 3.73% as reported by S&P for the March period. Both results remain very strong in comparison to both market expectations and historic index levels.

Performance Commentary - May 31, 2023

Cash and Short-Term Liquidity Weighting: ↓ The allocation to highly liquid assets (cash, commercial paper and government bonds) decreased from 11.67% to 9.77%. This largely reflected increased allocations to corporate bonds, bank T1 and corporate hybrids; partly offset by lower allocations to bank T2 and RMBS.

Corporate & Subordinated Debt Allocation: ↑ Weighting to corporate bonds and subordinated debt (corporate hybrids and bank T2) increased from 31.35% to 35.15%. The cautious market sentiment from April improved over the month of May as concerns over US regional banks subsided and the optimism of a US debt ceiling deal grew. This paved way for the continued recovery in bank capital instruments (T2 and AT1) which strongly outperformed corporate bonds. It also provided us the opportunity to take profits in bank T2 and increase allocations to corporate bonds. Domestically, credit spreads firmed over the month in sympathy with global risk sentiment. The return of Australian corporate issuance continued in May with deals from Ausnet, Transgrid and QIC Town Centre Fund in AUD and Melbourne Airport in EUR.

Interest Rate Duration Position: ↓ IRD positioning decreased from 0.39 to 0.32 years. Economic data over the month of May was mixed. Labour data in Australia and in the US alluded to softening conditions while the headline inflation numbers surprised to the upside. The silver lining in the US was the weakening ‘core services ex housing’ figure, a sign of weakening demand. RBA, FED, RBNZ, ECB and BOE raised interest rates by 25 basis points – with the RBA’s action somewhat surprising the market and consequentially increasing the expected terminal rate from 3.7% to 4.1%. Global Risk sentiment improved as the month progressed, with US regional bank sector concerns easing and the US debt ceiling negotiations being resolved in principle. Portfolio positioning reflected the market conditions with only minor adjustments.

Residential Mortgage-Backed Securities (RMBS): ↓ Weighting to RMBS securities decreased from 22.32% to 19.32% over the month. Public structured credit market yields began to tighten into month end, in line with other credit markets. Primary market issuance was less active in May than April, but include both a new bank transaction and regional bank transaction amongst other non-conforming programs. Secondary markets were more active over the month as investors looked away from the limited primary market supply to increase allocation to the sector. With respect to market performance, Prime arrears as reported by S&P’s SPIN index weakened 2bps over the month of March to 0.95%, with Bloomberg reporting prime arrears for April remaining inline with the prior month at 0.93%.. Nonconforming arrears improved 29bps to 3.70% as reported by S&P for the March period, with Bloomberg’s arrears index for nonconforming loans also improving 26bps for the month of April to 3.01%. Both results remain very strong in comparison to both market expectations and historic index levels.

Performance Commentary - April 30, 2023

Cash and Short-Term Liquidity Weighting: ↑ The allocation to highly liquid assets (cash, commercial paper and government bonds) increased from 7.12% to 11.67%. This largely reflected lower allocations to bank T2, corporate bonds & RMBS which was partly offset by higher allocations to bank T1 and ABS.

Corporate & Subordinated Debt Allocation: ↓ Weighting to corporate bonds and subordinated debt (corporate hybrids and bank T2) decreased from 37.35% to 31.35%. Following the March banking crisis which saw the collapse of a couple of US regional banks and Credit Suisse, April felt like a relatively quiet month. Reduced volatility and solid first quarter earnings from the US major banks supported the continued recovery in global credit spreads over the first half of the month. This allowed us to take profits on bank T2’s and crystalise the strong capital gain on our CS senior debt positions. Sentiment turned around in the second half of April, as concerns over US regional banking deposit flows reemerged. Ultimately, this led the collapse of yet another US regional bank, First Republic Bank, on the 1st of May. While credit spreads have underperformed into the start of May, the sell-off has been modest compared to the moves witnessed in March. In terms of new issue supply, there was a pickup of new deals from Australian corporates including Worley and Stockland in AUD and Transurban, Sydney Airport and Telstra in EUR. This continued into the start of May with new deals from Australian Financials in AUD, including NAB, BEN and Suncorp issuing senior paper and ANZ issuing a T2.

Performance Commentary - March 31, 2023

Cash and Short-Term Liquidity Weighting: ↓ The allocation to highly liquid assets (cash, commercial paper and government bonds) decreased from 10.91% to 7.12%. This largely reflected increased allocations to bank T1, bank T2 and RMBS and lower allocations to corporate bonds and ABS.

Corporate & Subordinated Debt Allocation: ↓ Weighting to corporate bonds and subordinated debt (corporate hybrids and bank T2) decreased from 38.62% to 37.35%. After a relatively quiet start to the month, global credit spreads sold-off sharply toward mid-March, as concerns over a potential “banking crisis” riled financial markets. The forced merger between Credit Suisse and UBS saw the write-down of around US$16 billion worth of CS AT1’s but resulted in a very handsome capital gain to our high conviction CS senior debt position. Note: we did not have exposure to CS AT1’s. Unsurprisingly, bank capital securities (i.e., T2 and T1) underperformed during this period, which provided us an opportunity to pivot back into global assets – this was largely expressed through adding to USD T2/T1’s issued by strong Australian financial institutions while reducing allocations to AUD corporate bonds. While the outlook remains uncertain, the markets consider the impacts of the March “banking crisis” to be largely contained, which has led to a modest recovery in global credit spreads at month-end. New issuance activity was relatively quiet over the month as volatility remained high.

Interest Rate Duration Position: ↓ IRD positioning decreased from 0.58 to 0.38 years. Financial stability concerns were the major drivers to volatility over the month – the collapse of Silicon Valley bank in the United States and the forced merger between Credit Suisse and UBS being the main culprits. Concerns around contagion, in the US, were quickly thwarted by guaranteeing the noninsured deposits of SVB, however, global confidence suffered in the aftermath. As a result, the volatility of global government bonds was unsurprisingly high for the month of March – with absolute levels ending the month sharply lower than where they began. Most notably, market’s view on AUS terminal cash rate decreased from 4.2% to 3.5%, with the expectation of a rate cut by the end of 2023. In line with market movements, portfolio interest rate duration was decreased.

Performance Commentary - February 28, 2023

Cash and Short-Term Liquidity Weighting: ↓ The allocation to highly liquid assets (cash, commercial paper and government bonds) decreased from 14.93% to 10.91%. This reflected increased allocations to corporate bonds, ABS and RMBS and lower allocations to bank T2 and bank T1.

Corporate & Subordinated Debt Allocation: ↓ Weighting to corporate bonds and subordinated debt (corporate hybrids and bank T2) decreased from 40.42% to 38.62%. The tremendous credit spread rally since November 2022 took a breather in February as the market focus shifted back to higher terminal interest rates and sticky inflation. Global credit spreads closed mixed month-on-month with USD slightly wider while EUR was slightly firmer as European recession probability forecasts declined. Domestic credit was a relative outperformer having lagged the recent global rally. This supported our tilt back towards into AUD credit (notably corporate bonds and bank T2) as we continued to take profits in global T2’s. Domestically, we saw the return of T2 issuance with ANZ issuing an inaugural 15-year (callable after 10 years) bond with a fixed coupon of 6.736%. This was followed up by T2 issuance from Suncorp and NAB, with all three deals performing well in secondaries. In early March, CBA issued a 15-year (callable after 10 year) T2 with a fixed coupon of 6.704% which is also performing well.

Interest Rate Duration Position: ↑ IRD positioning increased from 0.52 to 0.58 years. Both the volatility and the end of month government bond yields were higher for February. Much to the market’s dismay, global economic data had continued to surprise to the upside. Most notable of these surprises were the US unemployment number, which unexpectedly fell to 3.4%, along with upside surprises to US inflation data. Consequently, central bank commentary was hawkish due to the risk of persistent inflation on the back of a resilient consumption economy. As a result, terminal cash rates increased which flowed through to higher government bond yields. Australian rate movements were correlated to global government yields for the most part and as a result, our positioning was increased slightly.

Residential Mortgage-Backed Securities (RMBS): ↑ Weighting to RMBS securities increased from 20.75% to 23.04% over the month. Public structured credit market yields tightened significantly over the course of the month, after having lagged the tightening experienced by other credit markets in January. Senior AAA markets tightened by as much as 40 basis points, with middle mezzanine (A/BBB rated) and junior mezzanine markets (subinvestment grade rated) tightening as much as 80 basis points. Dealer inventory levels remain very low as market participants continue to seek out good quality paper. Lenders saw these significantly tightened yields as an opportunity to issue into the market, with a significant amount of dealflow within the current primary market pipeline across several different asset classes expected over the next month.

With respect to market performance, Prime arrears as reported by S&P’s SPIN index weakened 11bps over the month of December to 0.76%, with nonconforming arrears weakening to 3.20%. Both results remain very strong in comparison to both market expectations and historic index levels.

Kind words from Aussies managing
their own self funded futures

  • SMSF Mate is a unique website because it has ideas about how to approach SMSFs, insurance and other financial topics that come straight from first hand experience. It's much more useful than what you find on all the other financial websites that just offer generic info that you could easily get on the ATO's website. It's also nice to know there's no financial incentive behind the information, it's legitimately there to help people understand self-managed super funds and how to get the most out of them, not to get an affiliate commission from a broker or other financial services provider. The investment product information is also incredibly useful, I've never seen this kind of functionality on any other website that let's you look at such a wide range of products, sort by what info is most interesting or important to you, and subscribe to updates for different funds and financial products all in one place. Definitely worth checking out if you own or are considering an SMSF!

    David G, Self-Employed, SMSF Owner
  • SMSF Mate provides a unique insight into superannuation and financial topics in a way that is easier to understand than conventional websites. The colloquial nature of the site makes it easy to understand and they often speak about complicated topics in lamens terms so I can wrap my head around them. The investment product information is a great way to research funds that I am interested in investing in with my SMSF and there is a lot of helpful information on the site for better structuring my investment portfolio. In comparison to other websites which offer similar information, SMSF Mate excels as the information is free to access whereas many other sites charge a subscription fee for the same thing. Overall, I think SMSF Mate is a great resource for SMSF trustees and is worth looking at for a variety of super-related topics. Thanks.

    Tim B, Business Owner, SMSF Trustee