Spectrum Strategic Income Fund Monthly Summary March 2025

March 2025

Performance

The Fund managed to provide a small positive return for March, March was marked with volatility prior to the expectations of Trumps Tariffs, Liberty Day. The Fund has gained 1.20% for the rolling quarter and has paid a distribution of 1.33 CPU. h gaining The Fund underperformed cash and the various Bloomberg Indices for the month. The Fund on a rolling annual basis continues to outperform the various Bloomberg Benchmarks and RBA Cash.

Market Insights

Volatility post Trump’s raising of tariffs is probably higher than expected. Credit spreads to underperform until the market becomes comfortable with the outlook. Inflation is expected to rise and there is a real chance of stagflation. Central Banks are likely to remain cautious. I would expect that some of the higher tariffed countries to negotiate better terms.

Key Contributors & Detractors

Credit spreads are currently mean reverting to the long-term average. Over the month some spreads widened 20-25 bp depending on name and tenor. The market has now transitioned from expensive towards becoming cheap in relative value terms. This heightened volatility and the expectations of a slowing economy have caused confusion. Bonds at this stage are in risk off and are rallying. Credit spreads will remain volatile whist markets are concerned about the market outlook and global growth.

Outlook & Strategy

The asymmetry of risk is skewed towards risk off. Market participants are somewhat confused by steadily weakening asset markets. Initially the negative correlation between government securities and equities was working but then as fears of inflation and chunky sales of bonds by offshore investors that correlation broke down and bonds were sold.

Markets are firmly focussed on growth and inflation. At this point stagflation becomes a real risk. Until we know the circuit breaker for the market, or the extent of damage caused by Trump’s tariffs markets will remain highly volatile. Credit has retreated a long -way and this is providing opportunities over the long run. There is a real demand for credit and credit may yet provide a respite for government bonds should investors repatriate funds to support fiscal stimulus in their home countries.