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    ecor

    ECOR February 2022 Monthly Report & Update

    Overview
    • Credit spreads widened across sectors and geographies led by offshore names, and this was the main driver of a negative performance outcome for the month
    • The fund is running a very modest long duration position which was also a small detractor, although a decision to increase cash holdings and actively reduce credit exposure helped performance
    Performance
    Month (%)Quarter (%)1 Year (%)2 Years (%)Since Inception* (% p.a.)
    eInvest Core Income Fund (ECOR)-0.38-0.180.100.951.19
    Daintree Core Income Trust-0.38-0.180.090.912.37
    RBA Cash Rate0.010.030.100.160.23
    Excess Return-0.37-0.210.000.790.96

    ^ Inception date for ECOR was 22 November 2019 and inception date for the underlying Daintree Core Income Trust was 1 July 2017. Excess Return since inception is measured on the Daintree Trust. Performance shown above are net of fees. To give a long-term view of the fund performance in the asset class, we have shown the returns of the Daintree Core Income Trust. The Trust has identical investments. Fund returns are calculated using net asset value per unit of the underlying fund at the start and end of the specified period and do not reflect the brokerage or the bid/ask spread that investors incur when buying and selling units on the exchange. Past performance is not a reliable indicator of future performance

    ECOR Fund and Investment Objective 

    ECOR is an absolute return, cash plus, investment-grade bond strategy. ECOR is not constrained by any traditional fixed income index, which provides us the flexibility to seek out the best risk-adjusted returns available across regions, sectors and securities.

    The aim of ECOR is to provide a steady stream of income and capital stability over the medium term by investing in a diversified portfolio of fixed income securities and cash. ECOR seeks to produce a return (net of fees) that exceeds the RBA Cash Rate by 1.50-2.00% p.a. within a cycle.

    Key Statistics  
    • Modified duration: 0.30 years
    • Portfolio Yield: 1.86%
    • Average Credit Quality: A-
    • Portfolio ESG Score: A
    • Management Cost: 0.45% (incl. of GST and RITC)
    • Inception Date: 22 November 2019
    • ECOR paid a distribution of $0.035 dollars per unit in February 2022

    Fund Review

    ECOR returned -0.38% for the month bringing the rolling two-year performance to 0.95% net of fees. Performance was negatively impacted by wider credit spreads (particularly in offshore names) that impacted most sectors. Higher yields across government curves also drove non-government fixed rate bond yields higher. These effects together overwhelmed coupon income received for the month. The fund continues to have a very modest neutral interest rate duration positioning of 0.30 years.

    New issuance in Australia was focused on the structured credit and financials sectors. There was little in the way of non-financial corporate issuance. We participated in structured credit issuance from Metro and AFG, as well as a GoldenTree collateralised loan obligation transaction.

    Outlook

    February saw a continuation of the deterioration in sentiment that started in January. This is not surprising given the developing situation in Ukraine. Volatility in markets has naturally increased because of the associated uncertainty, a backdrop that is likely to remain in place for the foreseeable future.

    Bond yields rose for most of the month, as the US printed a 7.5% annual CPI print for January and the market once again marked higher the likely trajectory of Fed rate hikes. In the last week of February, however, bond yields staged a sharp reversal lower as safe haven buying offset continuing inflation fears. The net result is that bond yields are higher for the month but not dramatically so; by way of example the Australian 10-year government bond yield has risen from 1.90% to 2.14% with the Australian bond market underperforming the US. Amidst continuing bond market volatility, it was interesting that expectations for the RBA Cash Rate have not changed meaningfully with money markets continuing to envisage four RBA rate hikes by the end of 2022.

    Perhaps the main market move in February has been in US real yields, which after peaking in February have quickly fallen back to levels last seen in December. This move has been driven by a spike in the level of inflation expectations, with bond markets now pricing a stagflationary environment for the US over the next 2-3 years. Although risky assets (including credit) have suffered a fall in value because of the combination of geopolitical fears and heightened cash rate expectations across geographies, there is surprise in some quarters that the move has not been more severe given the enormous geopolitical uncertainty at this juncture. Lower real yields are likely part of the explanation, providing a support for equity markets in particular that would perhaps otherwise have experienced a more disorderly selloff.

    Amid the challenging investment environment, we remain particularly wary of declining market liquidity and the possibility that risk-off moves in markets are sharply exacerbated as a result. This is a time for defensive portfolio positioning and despite weakness in credit markets, the portfolio is positioned with a range of offsetting positions that aim to limit the drawdowns that will be experienced during these challenging times.

    Investment Manager

    Daintree Capital, the investment manager of ECOR, is a boutique investment manager specialising in the construction of absolute return, income generating portfolios. The firm was nominated as a Finalist for the Money Management Fund Manager of the Year Award in the Emerging Manager category for 2019, and ECOR has a ‘Recommended’ rating from Lonsec and Zenith. Daintree Capital is also a signatory to the United Nations Principles for Responsible Investment.

    To read more about eInvest Core Income Fund (Managed Fund) Code: ECOR, 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.