Fixed Interest Fund
The Fixed Interest Fund (Retail) (the ‘Fund’) fell 10.2% net of fees in the year ended 31 December 2022, underperforming its benchmark which fell 9.7%. Wholesale units in the fund fell 10.1% net of fees, with gross returns of -9.7%.
Inflation that was initially expected to be a transitory consequence of disrupted supply chains post-Covid was instead further fanned by higher commodity prices as a result of the war in Ukraine and persistently tight jobs markets driving services inflation. This prompted central banks in developed economies, including Australia, to aggressively hike cash rates from Covid-era lows to more normalised levels. These actions saw bond yields shift sharply higher over the year, driving bond prices down. The Australian 10-year yield moved from 1.66% at the end of 2021 to 4.05% at the end of 2022, as the RBA hiked the cash rate over 8 consecutive months from 0.1% to 3.1%.
The move higher for yields was not linear. The latter half of 2022 saw long bond yields oscillating as markets shifted and reassessed expectations for the eventual peak-and-pivot for central bank action, with the Australian 10-year averaging 3.62%, but trading as low as just below 3.0% and as high as 4.2%.
Fixed Interest (Wholesale) Fund Performance
As at 31 December 2022*
| fund | benchmark^ | |
|---|---|---|
| 3 months | 0.4% | 0.4% |
| 1 year p.a. | -10.0% | -9.7% |
| 3 years p.a. | -3.2% | -2.9% |
| 5 years p.a. | 0.1% | 0.5% |
| since inception p.a. | 1.9% | 2.4% |
^Benchmark: Bloomberg Ausbond Composite Bond Index 0+ Years. Past performance is not a reliable indicator of future performance.
Inception date: 15/01/2014.
Fixed Interest (Retail) Fund Performance
As at 31 December 2022*
| fund | benchmark^ | |
|---|---|---|
| 3 months | 0.3% | 0.4% |
| 1 year p.a. | -10.2% | -9.7% |
| 3 years p.a. | -3.5% | -2.9% |
| 5 years p.a. | -0.3% | 0.5% |
| 10 years p.a. | 1.4% | 2.3% |
| since inception p.a. | 1.6% | 2.4% |
^Benchmark: Bloomberg Ausbond Composite Bond Index 0+ Years. Past performance is not a reliable indicator of future performance.
Inception date: 14/06/2012.
This 7-year Green Bond issue from University of Melbourne seeks to fund the ongoing development of the University Campus was the first investment with the University.
Portfolio changes
The core of the Fund remains held in Commonwealth Government Bonds, which represent over 55% of the Fund and the benchmark.
The primary driver of removals from the Fund is the maturity of bonds, with issuers typically conducting a bond issue to refinance in the advance of maturities.
New issues participated in through 2022 from existing issuers were from:
- State and Commonwealth Governments.
- Sovereign Agency & Supranational issuers: Asian Development Bank, Inter American Development Bank, European Investment Bank, BNG Bank.
- Credit Issuers: Bendigo & Adelaide Bank, Westpac, International Finance Corporation, National Australia Bank, NBN Co, Australia Post, Investa Commercial Property Fund, Suncorp.
Additions to the Fund
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University of Melbourne – This 7-year Green Bond issue from University of Melbourne seeks to fund the ongoing development of the University Campus was the first investment with the University, and joins other credit issues held by the fund from education providers such as Australian Catholic University, University of Wollongong, University of Technology Sydney and Macquarie University.
While the Fund will continue to hold a broadly neutral duration position, small tactical longer or shorter duration positions may be run where market is viewed to have over or underpriced continued central bank interventions.
Outlook for the Fund
While monthly inflation prints from the US pointed to a slowing pace for global inflationary pressures late in the 2022, changes to Bank of Japan policy in mid-December drove a further bout of speculation central banks would remain aggressive into 2023, driving yields 0.6% higher into the end of the year. This move has unwound over January. While the Fund will continue to hold a broadly neutral duration position, small tactical longer or shorter duration positions may be run where market is viewed to have over or underpriced continued central bank interventions.
*Total returns are calculated using the sell (exit) price, net of management fees and gross of tax as if distributions of income have been reinvested at the actual distribution reinvestment price. The actual returns received by an investor will depend on the timing, buy and exit prices of individual transactions. Return of capital and the performance of your investment in the fund are not guaranteed. Past performance is not a reliable indicator of future performance. Figures showing a period of less than one year have not been adjusted to show an annual total return. Figures for periods of greater than one year are on a per annum compound basis. The current benchmark may not have been the benchmark over all periods shown in the above chart and tables. The calculation of the benchmark performance links the performance of previous benchmarks and the current benchmark over the relevant time periods.
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Fund updates