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%.
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.
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.
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.
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.
For a full list of investment products in the Fixed Income - Diversified Credit Index category, you can click here for the Peer Investment Report.
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.
For a full quantitative report on Realm High Income – Wholesale and its peer investments, you can click here for the Peer Investment Report.
For a full quantitative report on Realm High Income – Wholesale compared to the Global Aggregate Hdg Index, you can click here.
To sort and compare the Realm High Income – Wholesale financial metrics, please refer to the table above.
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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.
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.
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.
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.
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.
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.
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.
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