SET, FORGET AND REALLY ENJOY LIFE WITH 6.17%pa^
The Wholesale Investment Grade Portfolio
6.17% + PA^
Yield to Maturity
(calculated based on Ask pricing with 75c of brokerage applied)
This Wholesale Investment Grade Model portfolio has 10 AUD-denominated securities with equal weightings of 10% (in face value terms). It assumes an investment of A$500k face value. If investors would like access to the underlying securities, then please talk to an IAM Sales Representative.
The portfolio will invest in a range of liquid, investment grade fixed and floating rate corporate bonds. The portfolio is for investors who are looking to manage risk and earn higher than average yield, while striking the right balance between fixed and floating rate securities in the current interest rate environment. The portfolio will aim to outperform the AusBond Composite Credit Index (BACR0) over the medium to long term.
Coupon Type
FIXED
FLOATING
Bond Maturity
1 - 3 YEARS
3 - 5 YEARS
5+ YEARS
Sector
ENERGY
FINANCIAL
INDUSTRIAL
CONSUMER CYCLICAL
Market Update
During March 2024 Australian CPI data was released, indicating a dip by 0.3%, maintaining an annual growth rate of 3.4%. Meanwhile, retail sales saw a positive uptick of 1.1% month-on-month. Central banks, including the RBA, BoE, and FOMC, held policy rates steady at their March meetings, with subtle hints of a hawkish stance indicating a potential prolonged period of elevated rates.
March witnessed resilience in both equity and credit markets, with the ASX 200 posting marginal gains and the Bloomberg Composite Credit Index (BACR0) up by 0.90%. In the US, the PCE deflator rose by 0.3% in January, buoyed by increased consumer incomes from government transfers. However, real consumer spending experienced a slight decrease, and the ISM showed weaker-than-expected performance. US CPI for February surpassed expectations at 3.2%, driven primarily by rising shelter costs. Despite manageable demand-side inflation, persistent supply-side pressures underscore the limited effectiveness of monetary tightening measures.
Primary markets experienced heightened activity throughout the month, with notable issuances including Aurizon Network Pty Ltd’s issuance of $350mn of 7.5-year Senior Unsecured notes at ASW + 200 basis points. Additionally, both HSBC Holdings and Macquarie Banking Corporation entered the market with 10NC5 Subordinated transactions, priced at SQ ASW + 230 and SQ ASW +195 respectively.
Portfolio Update – March 2024
Projected Cash Flows
The projected cash flows (2 year forward) is the forecasted income investors would receive from investing A$500k face value in the Wholesale Investment Grade Model Portfolio.
Cash flows are calculated based on next call for principal cash flow figures with the following applying:
- Cash flows for fixed rate bonds are set out and paid in accordance with the disclosure documents for the bonds;
- Cash flows for floating rate bonds assume a future rate of underlying index 3m BBSW for all coupon refixes.
Performance
| Monthly Performance (as of February 2024) | 1M | 3M | 6M | 1YR |
|---|---|---|---|---|
| ASX200 Index (AS51) | 2.57% | 4.03% | 12.03% | 10.02% |
| AusBond Composite Index (BACMO) | 1.12% | 1.03% | 4.85% | 1.47% |
| AusBond Credit FRN Index (BAFRN0) | 0.50% | 1.48% | 2.84% | 5.44% |
| AusBond Credit Index (BACRO) | 0.90% | 1.37% | 4.58% | 4.69% |
| Investment Grade Model Portfolio | 1.43% | 2.78% | 7.73% | 11.26% |
*Note: Inception of the wholesale investment grade model portfolio was 1 September 2022. Performance is measured as a total return. Click here for more information on the above indices.
| Portfolio | Index | |
|---|---|---|
| Interest Rate Duration (Years) | 3.47 | 3.13 |
| Average Life (Years) | 5.97 | 3.57 |
| Credit Duration (Years) | 4.71 | 3.13 |
| Yield to Maturity | 6.17%** | 4.84% |
| Average Rating* | BBB+ | A+ |
*Average Rating is based on a linear basis.
**Yield to maturity is calculated based on Ask pricing with 75c of brokerage applied
Portfolio Commentary
Performance was strong over the month at 1.43% across the broad suite of assets in the portfolio. However, fixed rate assets did outperform the floating rate assets in general.
This month we added the HSBC Holdings 10NC5 floater and Aurizon Network’s 7.5-year Senior Unsecured fixed lines to the portfolio replacing lower-yielding alternatives in Air New Zealand and the shorter Aurizon Network 2028s. The running yield of the portfolio remains very strong above 6%.
We remain skewed towards fixed rate / over floating rate in around a 60% / 40% split given our view around duration and locking in higher yields before rate cuts do come through. This years strategy is to improve diversification, while locking in higher yields and ensuring that the portfolio is prepared for any credit deterioration that may eventuate.
