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    dhof

    DHOF November Monthly Report & Update

    Overview
    • Credit spreads widened on the month, detracting from
      performance
    • Duration positioning was a positive offset to wider credit spreads,
      but nonetheless the fund return for the month was negative
    Performance
    Month (%)Quarter (%)1 Year (%)Since Inception* (% p.a.)
    DHOF Return-0.80-0.084.7710.64
    RBA Cash Rate0.010.020.100.17
    Excess Return-0.81-0.114.6710.47

    ^ Inception date for DHOF was 1 March 2020. Excess return is measured with reference to net performance. Returns for periods longer than one year are annualised. Past performance is not a reliable indicator of future performance. 

    DHOF Fund and Investment Objective 

    DHOF targets an absolute return over time by investing in a diversified portfolio of hybrid securities which offer the best risk adjusted returns available from a global universe of securities.

    We have applied for DHOF to be admitted to Trading Status under the AQUA Rules, with an expected trading date in November 2021.

    The aim of DHOF is to provide a steady stream of income over the medium term, by investing in a diversified portfolio fo Australian and global hybrid securities and cash, and to provide a total return (after fees) that exceeds the Benchmark by 3.5%-4.5% measured throughout a market cycle.

    Key Statistics  
    • Modified duration: 0.46 years
    • Spread duration: 2.38 years
    • Running Yield: 4.10%
    • Average Credit Quality: BBB-
    • Portfolio ESG Score: A
    • Management Cost: 0.65% + 0.10% pa expense recovery (incl. of GST and RITC)
    • Inception Date: 1 March 2020

    Fund Review

    The Fund recorded -0.80% in November due to credit spread widening. There were a mixture of fundamental and technical factors driving these moves. In the United States, new issuance rebalancing flows saw existing issues de-rated against new offerings. While the Fund took the opportunity to add new securities from the likes of JP Morgan and Bank of America; overall our exposure to the United States was a key detractor for the month. European holdings also saw spreads widen, but more noticeably toward the end of the month as concerns of new COVID variants arose. In contrast, the Australian securities held their ground as the market digested earnings results from four of the largest issuers. Headline results were strong, with NAB the pick of the bunch by demonstrating not just a solid profit result, but also a promising outlook and a clear strategic vision for medium-term growth. Early in November Macquarie Group completed a $1.5bn placement and initiated a share purchase plan that raised a further $1.3bn, providing a pro-forma capital buffer of more than $8bn over regulatory requirements.

    The overlay acted as a stabilising factor, recording a modest positive result for the month, but was dwarfed by spread movements. Interest rate and currency markets are seeing increased levels of volatility as investors attempt to anticipate how central banks will respond to higher inflation and the evolving pandemic situation.

    Outlook

    November saw a continuation of volatility in interest rate markets. Although the relentless rise in bond yields seen in October did not continue, it took the risk-off sentiment surrounding Omicron to push bond yields decisively lower. This same sentiment saw credit spreads pushing wider.

    Lower bond yields were not universal; for example, the US 2-year yield continued to see significant upward pressure. Investors remain uncertain as to the severity of US inflation, the likely policy response, the extent of the subsequent slowdown in US demand and the severity of global spillovers. Such uncertainty will linger for some time, and this is driving a significant uptick in the volatility of government bond markets globally. Interestingly, with expectations now heightened that the Fed will taper asset purchases more quickly than expected, US yield curve flattening pressure has also increased. This means investors are increasingly starting to focus not just on the nearer-term trajectory for monetary policy, but also on the level and timing of the end of the current monetary cycle. This part of the cycle is usually where financial asset returns become more volatile, and the faster-than-expected removal of price-insensitive quantitative easing will exacerbate this pressure. We keep a close eye on US real yields as these remain at deeply negative levels but, we feel, susceptible to upward pressure in 2022. If we are correct in this view, higher real yields will reduce the value of the future cash flows across the spectrum of financial assets.

    To read more about Daintree Hybrid Opportunities Fund (Managed Fund) ASX: DHOF, click here.

    Interested in purchasing units in the fund? Contact your financial adviser or simply purchase via your online broker, and as always read the PDS for more information. This can be found here. 

    Keen to learn more? Read why Active managers tend to outperform passive fixed income managers.

    Past performance is not a reliable indicator of future performance. Please read the PDS prior to investing. This information is general in nature and is subject to the terms and conditions outlined here.