Yarra Enhanced Income Fund aims to earn higher returns than traditional cash management and fixed income investments (over the medium-to-long term) through exposure to a diversified portfolio of hybrid (debt/equity) and fixed income securities. The Fund is expected to produce less volatile returns than are inherent in equity markets, while offering modest capital growth and some franking credits. The approach is research-driven, utilizing the comprehensive research process of the Yarra Capital Management Group and taking into account the broad economic and market environment as well as specific investments details.
The Yarra Enhanced Income Fund returned 2.58% (net basis, including franking) over the quarter, outperforming its benchmark by 156 bps. On a 12-month view the Fund returned 7.18%, outperforming the RBA Cash Rate by 367 bps (net basis, including franking).
Carry continues to underpin positive Fund performance and is providing strong downside protection in volatile markets. As spreads tightened during the quarter, we have seen particularly strong performance from offshore issuers. The strongest performance came from banking and diversified financial securities.
Primary market volumes picked up during the period and presented some attractive opportunities to capture elevated levels of outright yield. We continue to actively trade to position for the best possible risk-adjusted returns, and this quarter took part in the Lloyds bank deal and later the WestConnex finance deal.
What is Yarra Enhanced Income Fund Yarra Enhanced Income Fund is an Managed Funds investment product that is benchmarked against Global Aggregate Hdg Index and sits inside the Fixed Income - Multi-Strat Income 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 Yarra Enhanced Income Fund has Assets Under Management of 91.50 M with a management fee of 0.55%, a performance fee of 0 and a buy/sell spread fee of 0.2%.
How has the investment product performed recently? The recent investment performance of the investment product shows that the Yarra Enhanced Income Fund has returned 1.68% in the last month. The previous three years have returned 4.75% annualised and 5.54% each year since inception, which is when the Yarra Enhanced Income Fund 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 Yarra Enhanced Income Fund first started, the Sharpe ratio is 0.39 with an annualised volatility of 5.54%. The maximum drawdown of the investment product in the last 12 months is -0.3% and -30.42% 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 Yarra Enhanced Income Fund has a 12-month excess return when compared to the Fixed Income - Multi-Strat Income Index of 3.21% and 0.47% 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. Yarra Enhanced Income Fund has produced Alpha over the Fixed Income - Multi-Strat Income Index of 0.35% in the last 12 months and 0.07% since inception.
What are similar investment products? For a full list of investment products in the Fixed Income - Multi-Strat Income Index category, you can click here for the Peer Investment Report.
What level of diversification will Yarra Enhanced Income Fund provide? Yarra Enhanced Income Fund has a correlation coefficient of 0.89 and a beta of 0.36 when compared to the Fixed Income - Multi-Strat Income 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 Yarra Enhanced Income Fund and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Yarra Enhanced Income Fund with the Global Aggregate Hdg Index? For a full quantitative report on Yarra Enhanced Income Fund compared to the Global Aggregate Hdg Index, you can click here.
Can I sort and compare the Yarra Enhanced Income Fund to do my own analysis? To sort and compare the Yarra Enhanced Income Fund financial metrics, please refer to the table above.
Has the Yarra Enhanced Income Fund 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.
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Performance Commentary - August 31, 2023 The Yarra Enhanced Income Fund returned 0.96% (net basis, including franking) over the month, outperforming its benchmark by 61 bps. On a 12-month view the Fund has returned 7.04%, outperforming the RBA Cash Rate by 367 bps (net basis, including franking).
Spread tightening contributed significantly to performance for the month of August. Tier 2 and senior spreads were particularly strong, helped along by high demand for credit and hybrids. Adding further to positive monthly performance was the continuation of substantial running yield.
New deal flow began to pick up during August and has continued to gain momentum late in the month. We took part in the Lloyd’s Bank Tier 2 deal which was trading more akin to domestic Tier 1. Other issuances we have seen has been well supported by the market, with elevated yields and equity market volatility clearly attracting flow into the sector. We remain active in both the primary and secondary markets as we seek to capture attractive spreads across the market.
Performance Commentary - July 31, 2023 The Yarra Enhanced Income Fund returned 1.43% (net basis, including franking) over the month, outperforming its benchmark by 109 bps. On a 12-month view the Fund has returned 6.63%, outperforming the RBA Cash Rate by 346 bps (net basis, including franking).
Broad-based spread widening, coupled with significant carry, underpinned strong performance through July. Tier 2 spreads were particularly strong through the month, contributing significantly to outperformance. We have long held a preference for Tier 2 over Tier 1, given the relative trading level.
New deal flow began to ease as the August reporting season neared. The issuance we did see was well supported by the market, with elevated yields clearly attracting flow into the sector. We remain active in both the primary and secondary markets as we seek to capture attractive spreads across the market.
Performance Commentary - June 30, 2023 The Yarra Enhanced Income Fund returned 0.43% (net basis, including franking) over the quarter, underperforming its benchmark by 51 bps. On a 12-month view the Fund returned 5.46%, outperforming the RBA Cash Rate by 254 bps (net basis, including franking).
Strong carry once again added significantly to performance, outweighing wider spreads and selling of duration. Tier 1 securities were among the top performers during the quarter, with significant alpha generated from selective Tier 1 positions we added in the aftermath of the Credit Suisse collapse.
Outright yields in the Fund are becoming difficult to ignore. We are seeing strong investment grade credit at yields not seen in many years. We continue to make the most of this period, adding to positions where we see the best available riskadjusted returns.
Performance Commentary - May 31, 2023 The Yarra Enhanced Income Fund returned -0.20% (net basis) over the month, underperforming its benchmark by 52 bps. On a 12-month view the Fund has returned 5.02%, outperforming the RBA Cash Rate by 237 bps (net basis, including franking).
May performance was impacted by both widening credit spreads and a sell-off in duration. Strong levels of carry offset some of the impact, but was insufficient to push performance into positive territory. Our position in bank bill futures detracted from performance most significantly over the period. The Fund benefitted from its limited exposure to Tier 1 securities which were weak over the period.
A steady flow of new issuance made its way to market over the period. Among the new deals was a Tier 2 offer from Judo Bank which the Fund participated in. At a spread of 500 bps the deal looked compelling, with our thesis underpinned by Judo’s strong capital position. New deals were generally well supported and we expect a steady flow to continue over the next few months.
Performance Commentary - April 30, 2023 The Yarra Enhanced Income Fund returned 0.53% (net basis) over the month, outperforming its benchmark by 24 bps. On a 12-month view the Fund has returned 4.81%, outperforming the RBA Cash Rate by 246 bps (net basis, including franking).
Performance in April was largely attributable to strong carry, with high levels of income likely to be a theme throughout 2023. At these levels, the Fund’s running yield is sufficient to offset significant widening of spreads should that occur.
Spreads during the month did contract modestly, particularly among Tier 2 securities which we continue to view favorably. On the new issuance front, the Fund participated in a new deal from Worley. Worley holds a strong position in the engineering and construction industry and are well diversified operationally, with very limited customer concentration risk. At a spread of 250 bps the deal appeared fairly priced. We continue to be active buyers of credit in the current climate.
Performance Commentary - March 31, 2023 The Yarra Enhanced Income Fund returned 2.62% (net basis, including franking) over the quarter, outperforming its benchmark by 181 bps. On a 12-month view the Fund returned 3.71%, outperforming the RBA Cash Rate by 165 bps (net basis, including franking).
Strong carry continues to be a meaningful contributor to performance, adding, in our view, significant downside protection should we see any weakness in spreads. The Fund’s long position in Bank Bill Futures also created considerable alpha. We have a long held these positions in the expectation the RBA would not be able to raise rates as high as the market is pricing.
The ongoing absence of new issuance, coupled with a modest risk rally helped push corporate credit and hybrid spreads tighter. We continue to see value in the market with spreads and outright yields at current levels.
Performance Commentary - February 28, 2023 The Yarra Enhanced Income Fund returned 0.20% (net basis) over the month, underperforming its benchmark by 4 bps. On a 12-month view the Fund has returned 2.39%, outperforming the RBA Cash Rate by 61 bps (net basis, including franking).
Positive performance in February was attributable to modest tightening in spreads and substantial carry, led by our exposure to Tier 2 which continues to outperform Tier 1 following weak relative performance in 2022. During the period we participated in a new Tier 1 deal from ANZ, launched at an attractive new issuance premium and pricing that we expect will converge toward secondary Tier 1 market levels.
We still see compelling value on offer across much of the corporate credit and hybrid market, reflecting elevated outright yields and strong downside protection.
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