January 2025

Performance

The Fund continues to deliver strong returns. January saw the Fund gain a solid 0.49% for the month gaining 1.55% for the quarter, whilst eclipsing the cash benchmark which gained 1.09% for the quarter. The Fund continues to outperform the Ausbond Indices for the Composite0-5, Composite All Maturities and the FRN index.

Market Insights

The Fund navigated a month of high bouts of volatility following President Trump’s inauguration. Credit continues to perform in the absence of defaults, strong U.S. economic data and economic growth. Strong demand for credit helped to cement the portfolio gains.

Key Contributors & Detractors

Returns were driven by demand for higher yielding product such as corporate hybrids and bank tier 2 securities. This demand is expected to continue. Possible changes to the Ausbond Indices with the potential for the inclusion of Tier 2 product into the indices is driving demand from passive and index funds. The recent changes announced by APRA to wind up the issuance of tier 1 securities has led to demand for higher yielding product which bank Tier 2 and corporate hybrids fulfill. Corporates held within the portfolio saw some gains whilst bank senior drifted wider.

Outlook & Strategy

Demand for bank tier 2 securities and hybrids with non-viability triggers is expected to continue and this will assist with returns as the portfolio is well positioned. Diversity by name and sector is likely to continue with some emphasis placed on infrastructure assets. Duration to remain short as the Fund will maintain its percentages in floating rate assets.

The impact of inflation and how it is managed will drive expectations. Imposed tariffs will only cloud the situation. Interest rates are likely to remain within a tight band and possibly may remain at current levels for some time.