Fixed Interest Fund
The September quarter was a positive one for fixed income portfolios, with the Fixed Interest Fund (wholesale) returning 2.98% (after fees) broadly in line with the benchmark Bloomberg Ausbond Composite Bond Index 0+, up 3.02%.
Yields fell sharply in July on the release of the June Quarterly CPI, with the underlying measure of inflation coming in at 0.8% for the quarter, below the expected 1%, with the annual figure of 3.9% also below the 4% rate expected and showing continued progress back toward the RBA’s target band. In the US, the July FOMC Meeting laid the groundwork for the commencement of a US rate cut cycle with Fed Chair Powell indicating members had grown more confident that inflation was trending toward the Fed’s 2% target.
The response from markets was to begin pricing in rate cuts, with RBA pricing shifting from a flat outlook in the near term to 4 cuts priced for the next 18 months. The Fed, which had been priced for 2 moves to December at the end of June, added another two to the 2024 outlook and priced as many as 9 rate cuts to the end of 2025.
Over September, the fund added a small short duration position by selling 2-3 year Commonwealth Government Bonds and buying short term bills, believing further evidence is required before the RBA starts to follow the lead of its US counterpart.
Outlook for the Fund
The fund commences the December quarter underweight duration by 0.05, believing near-term expectations for the RBA are overly optimistic. The RBA is expected to continue to hold rates steady despite the outsized (50bp) commencement of a rate cutting cycle from the Fed at its September meeting.
Fixed Interest (Wholesale) Fund Performance
As at 30 September 2024~
| fund | benchmark^ | |
|---|---|---|
| 3 months | 3.0% | 3.0% |
| 6 months | 2.1% | 2.2% |
| 1 year p.a. | 6.9% | 7.1% |
| 3 years p.a. | -1.5% | -1.2% |
| 5 years p.a. | -0.7% | -0.4% |
| since inception p.a. | 2.3% | 2.7% |
^ 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 30 September 2024~
| fund | benchmark^ | |
|---|---|---|
| 3 months | 2.9% | 3.0% |
| 6 months | 2.0% | 2.2% |
| 1 year p.a. | 6.6% | 7.1% |
| 3 years p.a. | -1.7% | -1.2% |
| 5 years p.a. | -1.0% | -0.4% |
| since inception p.a. | 2.0% | 2.7% |
^ Benchmark: Bloomberg Ausbond Composite Bond Index 0+ Years. Past performance is not a reliable indicator of future performance.
Inception date: 14/06/2012.
The RBA is expected to continue to hold rates steady despite the outsized (50bp) commencement of a rate cutting cycle from the Fed at its September meeting.
Portfolio changes
- Modified Duration Increase -0.05 relative to the index via selling Sep 2026 and April 2027 Commonwealth Government maturities and buying short dated negotiable certificates of deposit.
- Credit Allocation +5% relative to index was maintained, funded from Commonwealth Government Securities, focused on securities with <3y to maturity.
- Semi-Government +3.5% relative to index was maintained, funded from Commonwealth Government Securities, focused on securities with ~5y to maturity.
The fund commences the December quarter underweight duration by 0.05, believing near-term expectations for the RBA are overly optimistic.
Sector allocation
Sector overweights
Credit (+9.0%), Semi Government (+3.57%), Cash (+0.51%)
Sector underweights
SSA (-0.19%), Commonwealth Government (-12.89%)
*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.
Disclaimer
Interests in the Australian Ethical Managed Funds are issued by Australian Ethical Investment Ltd (ABN 47 003 188 930, AFSL 229949), the Responsible Entity of the Australian Ethical Managed Funds.
The information in this summary is of a general nature and is not intended to provide you with financial advice or take into account your personal objectives, financial situation or needs. Before acting on the information, consider its appropriateness to your circumstances and read the Financial Services Guide, relevant product disclosure statement and Target Market Determination available on our website.
You may wish to seek financial advice from an authorised tax or financial adviser before making an investment decision. Past performance is not a reliable indicator of future performance.
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