The Wholesale Investment Grade Portfolio
7.07
% + PA^
Yield to Maturity
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$500k face value. If investors would like access to the underlying securities, then please talk to an IAM Sales Representative.
The portfolio will invest in a range of liquid, investment grade fixed and floating rate corporate bonds. The portfolio is for investors who are looking to manage risk and earn higher than average yield, while striking the right balance between fixed and floating rate securities in the current interest rate environment. The portfolio will aim to outperform the AusBond Composite Credit Index (BACR0) over the medium to long term.
Coupon Type
100%
Fixed
0%
Floating
Bond Maturity
9.4%
1-3 years
40.1%
3-5 years
50.5%
5+ years
Sector
10.3%
Energy
69.8%
Financial
9%
Industrial
10.5%
Consumer cyclical
Portfolio Overview
Overall a positive month of economic news. US inflation is cooling and the economy is holding up. Most of the US company reports beat analysts’ expectations. The FOMC decided to hike by 25bps as expected, but the market isn’t pricing any further Fed hikes. The Australian labour market remains strong and the Australian unemployment rate dropped to 3.5%. Australia’s Q2 CPI decreased to 6%/yr and was below expectations. However, services inflation is proving to be more challenging than goods inflation. Following RBA’s pause, the market has repriced lower RBA cash rate peak to c.4.2%. Over the month, the S&P500 gained 3.1%. This follows a 6.5% rise in June.
Cash credit rallied in July which helped the model portfolio performance. In Australia, credit spreads on financials outperformed non-financials. In the Tier 2s, the latest Westpac Jun-33 Tier 2 FRNs were marked at +191bp v issue of +230bp in June, and a strong performer (+1.78%). The major bank c5yr A$ Tier 2/senior unsecured ratio has tightened to 2.1x compared to 2.4x end of June. The longer-dated Tier 2s in the model portfolio, including the ANZ 6.736 Feb-38 and CBA 6.704 Mar-38, did even better up 2.39% and 2.31% respectively.
Primary issuance was quiet and we made no changes to the model portfolio. Issuance is likely to pick up late August following company reporting.
Portfolio Update – 31st July 2023
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.
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 31 July 2023) | 1M | 3M | 6M |
|---|---|---|---|
| ASX200 Index (AS51) | 2.89% | 2.23% | 1.95% |
| AusBond Composite Index (BACMO) | 0.52% | 2.63% | -0.70% |
| AusBond Credit Index (BACRO) | 0.85% | -0.76% | 0.91% |
| Investment Grade Model Portfolio |
1.55% |
0.90% | 3.29% |
| AusBond FRN Index (BAFRNO) | 0.46% | 1.21% | 2.38% |
*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
