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    ECOR June 2022 Monthly Report & Update

    Overview
    • Fund performance was impacted by wider credit spreads, which overwhelmed coupon income and a positive contribution from overlay strategies
    • The fund remains defensively positioned amid volatile market conditions
    Performance
    Month (%)Quarter (%)1 Year (%)2 Years (%)Since Inception* (% p.a.)
    eInvest Core Income Fund (ECOR)-0.38-0.87-2.610.520.30
    Daintree Core Income Trust-0.38-0.88-2.640.461.82
    RBA Cash Rate0.060.100.170.160.24
    Excess Return-0.44-0.97-2.780.360.06

    ^ 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: 0.00 years
    • Portfolio Yield: 3.08%
    • Average Credit Quality: A
    • Portfolio ESG Score: AA
    • Management Cost: 0.45% (incl. of GST and RITC)
    • Inception Date: 22 November 2019
    • ECOR paid a distribution of $0.0175 dollars per unit in June 2022

    Fund Review

    ECOR returned -0.38% for the month net of fees. The fund’s performance was negatively impacted by wider credit spreads which more than offset coupon income and a substantial contribution from our overlay and hedging strategies. All sectors widened on the month, but the corporate sector was the largest detractor. On average Australian and US credit spreads were approximately twenty-three basis points wider on the month, but both markets substantially outperformed European spreads which were out approximately fifty-five basis points. The core duration position in the fund remained flat as at month end.

    Given our defensive positioning and continuing bearish outlook for spreads, we largely avoided new issues during the month. Having said that supply was limited locally which helped spread performance relative to offshore markets. We did, however, start to spend some of our excess cash on short-dated corporate and financial assets.

    Outlook

    The near-term outlook remains considerably uncertain, with intra-week volatility being exacerbated by lower trading volumes brought on by the northern hemisphere summer.

    Central banks are quickly gaining ground in their bid to collar inflation, but their actions still feel more about catching pace with prices rather than having any real influence on their moderation. The more pressing issue, voiced recently by Federal Reserve Chairman Jerome Powell, is ensuring that inflation expectations remain anchored. He went so far as to say that “The Fed would restore price stability even at the risk of raising interest rates too high”. Breakeven rates and inflation forwards peaked in late April and have subsequently fallen by an average of half a percentage point, suggesting that the financial markets believe the Fed can return inflation to desired levels. Similar trends are evident in Europe, the UK and Australia, with local breakeven rates back to levels prior to Russia’s invasion of Ukraine.

    While anchored inflation expectations would help to keep Chair Powell from following through on his “too high” threat, we believe a deteriorating growth outlook is also influencing their recent march lower. Economic data has been mixed, particularly in the United States, with several indicators printing below consensus estimates in recent months. However, monetary policy transmission channels are typically lagged by several months, thus it is difficult to attribute this weakness to central bank actions alone. Another possible sign of economic fragility is weakness in commodities, including base metals such as copper. Long watched as a barometer of economic health, the price of copper has fallen by more than 15% in June alone.

    Despite these signals of caution, demand for labour remains strong. Business sentiment has proven resilient when compared with consumer sentiment, leading to record low unemployment rates across the developed world. Despite central banks’ inflation problem, we believe the employment market will be of as great an interest to policymakers as midterm elections loom for the United States in November. Surging prices for essentials such as gasoline and food, coupled with tenuous housing markets stalled by sharply rising mortgage rates make for a politically volatile combination.

    The lure of strong nominal yields in the United States has seen the US dollar appreciate materially this year. Against an uncertain geopolitical backdrop, this poses risks to emerging markets that are already struggling to secure stable food and energy supplies as the sanctions noose is tightened on Russia. However, despite sustained global pressure, Russia’s currency has been one of the strongest in the world this year after forcing certain customers to purchase their energy products with rubles. Meanwhile, the Bank of Japan’s steadfast maintenance of yield curve control has driven sustained weakness in the yen, a currency that has traditionally acted as a safe-haven of sorts in risk-off environments.

    Concerns are growing about the durability of the current expansion, which we believe will contribute to ongoing credit market volatility. Local estimates for the terminal cash rate are too high, in our view. We are sceptical that the Australian economy could sustain a restrictive 3%+ cash rate when most market forecasts of the neutral rate are currently around 2.5%. We expect AUD cash rates to approach neutral by the end of 2022 before becoming more sensitive to incoming data. Credit spreads have been repricing since late 2021, reflecting a very tight starting point and macro/geopolitical concerns. Corporate balance sheets are strong, with plentiful liquidity and sensible term structures which will limit the widening impulse of the current cycle. Nevertheless, we believe it is premature to consider removing hedges or adding spread duration for now.

    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.

    The rating issued 02/2022 published by Lonsec Research Pty Ltd ABN 11 151 658 561 AFSL 421 445 (Lonsec).  Ratings are general advice only and have been prepared without taking account of your objectives, financial situation or needs. Consider your personal circumstances, read the product disclosure statement and seek independent financial advice before investing. The rating is not a recommendation to purchase, sell or hold any product. Past performance information is not indicative of future performance.  Ratings are subject to change without notice and Lonsec assumes no obligation to update.  Lonsec uses objective criteria and receives a fee from the Fund Manager. Visit lonsec.com.au for ratings information and to access the full report. ©2022 Lonsec. All rights reserved.

    The Zenith Investment Partners (ABN 27 103 132 672, AFS Licence 226872) (“Zenith”) rating (assigned 09/2020) referred to in this document is limited to “General Advice” (s766B Corporations Act 2001) for Wholesale clients only.  This advice has been prepared without taking into account the objectives, financial situation or needs of any individual and is subject to change at any time without prior notice.  It is not a specific recommendation to purchase, sell or hold the relevant product(s).  Investors should seek independent financial advice before making an investment decision and should consider the appropriateness of this advice in light of their own objectives, financial situation and needs. Investors should obtain a copy of, and consider the PDS or offer document before making any decision and refer to the full Zenith Product Assessment available on the Zenith website. Past performance is not an indication of future performance. Zenith usually charges the product issuer, fund manager or related party to conduct Product Assessments.  Full details regarding Zenith’s methodology, ratings definitions and regulatory compliance are available on our Product Assessments and at https://www.zenithpartners.com.au/RegulatoryGuidelines