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fixed income

How to use credit to diversify your cash portfolio

The Australia corporate credit market is a concentrated market with the majority of issuers within the financial sector. However, it gives access to private company issuers that investors would not normally be able to access through the equity markets. These private company issuers are typically within the safe-haven sectors such as infrastructure, universities and utilities where there are strong certain cash flows to service the balance sheet and would provide a stable known income during times of market volatility. Examples of these private issuers include Ausgrid (the monopoly electricity and transmission utility in NSW), QPH Finance (the financing company of the Port of Brisbane) and the University of Sydney.

Based on the current Australian credit index, the number of corporates that are publicly listed on the exchange is slightly over half at around 54% with 46% of the companies being private issuers. On a market value basis, the private issuers represent 37% of the index by value.

The rating distribution of these private companies in the credit index is skewed towards the high quality credit ratings. The majority of AAA are government owned/sponsored entities. Private companies represent all of the AA bucket with issuers such as Export-Import Bank of Korea, Korea National Oil Corp, Korean South East Power, University of Wollongong and Auckland Council.

Access to these private company issuers through the credit market provides diversity into different industries and strong quality of businesses that are not represented in the equity markets. These private issuers are investment grade rated with a focus in safer industries such as infrastructure, universities, airports and utilities.

Daintree’s Core Income portfolio is ideally placed to access these private issuers with holdings in a number of strong issuers with strong financials and business profile.

 

Author, Simon Wang, Senior Credit Analyst.

 

Disclaimer: Please note that these are the views of the writer and not necessarily the views of Daintree. This promotional statement does not take into account your investment objectives, particular needs or financial situation.