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    emax

    EMAX January 2022 Monthly Report & Update

    Overview
    • Wider credit spreads and higher bond yields detracted performance, with AT1 spreads underperforming
    • Coupon income and overlay positioning partially offset the negative impact of wider credit spreads and higher bond yields
    Performance
    Month (%)Quarter (%)1 Year (%)Since Inception* (% p.a.)
    eInvest Income Maximiser Fund (EMAX)-0.21-0.312.460.93
    Daintree High Income Trust-0.09-0.202.842.72
    RBA Cash Rate0.010.030.100.23
    Excess Return-0.20-0.282.360.70

    ^Inception date for EMAX was 22 November 2019 and inception date for the underlying Daintree High Income Trust was 1 November 2018. Excess Return since inception is measured on the Daintree High Income 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 High 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

    Performance

    emax

    EMAX Fund and Investment Objective 

    EMAX is an absolute return bond strategy. The Fund 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.

    EMAX aims to provide investors with a monthly income stream over the medium term by investing in a diversified portfolio of credit fixed income securities and cash that exceeds the RBA Cash Rate (after fees) by 3-4% over a market cycle.

    Key Statistics  
    • Modified duration: 1.31 years
    • Portfolio Yield: 3.21%
    • Average Credit Quality: BBB+
    • Portfolio ESG Score: AA
    • Management Cost: 0.65% (incl of GST and RITC)
    • Inception Date: 22 November 2019
    • EMAX paid a distribution of $0.092 dollars per unit in January 2022

     

    emaxFund Review

    EMAX returned -0.21% for the month bringing the rolling one-year performance to 2.46% net of fees. The fund’s performance was negatively impacted by wider credit spreads and higher bond yields, however that was mostly offset by coupon income and overlay trades resulting in a slight loss for the month. While RMBS/ABS held in relatively well, credit spreads were wider across most sectors with greater weakness seen in bank capital AT1 securities. The fund continues to have a very modest neutral interest rate duration positioning of 0.60 years.

    New issuance in Australia remained very modest, however the pipeline is ramping up with multiple deals announced including Liberty Auto, AFG, Metro ABS, Mortgage House and Bank of Nova Scotia.

    Outlook

    January 2022 was of course the month that Jerome Powell finally confirmed, as expected, that the FOMC would tighten US monetary policy. History may show that although a change in stance was expected, January was the month that markets started to take the Fed seriously. Bond yields rocketed higher, led by the short end of the US yield curve as the market once again reassessed the number of rate hikes that the US Federal Reserve will need to administer before this tightening cycle concludes. This bought more pain for those who continue to hold standard 60/40 asset allocations in the belief that a 40% allocation to long duration sovereign bonds will act as a stabiliser to a 60% growth asset allocation. Equities and bond duration both suffered in tandem, and we believe such behaviour will remain a feature in markets for the foreseeable future.

    For now, though, it is interesting that ‘buy the dip’ behaviour is still evident in equity markets. Sentiment is weaker, but the capitulation that tends to end equity market downturns is absent. The Ukrainian situation seems not to be on the radar screen of equity investors. Bond markets have calmed down in the latter part of the month as well. Commodities are clearly reacting to the geopolitical backdrop though, particularly in oil where the increase in price over the last 12 months is in fact the biggest 12-month percentage increase in the last 20 years. This is a tax on consumption that should, all else being equal, reduce the need for interest rate hikes.

    Of course, however, all else is not equal. Assuming the geopolitical situation does not worsen, the status quo is that: 1) Consumers have saved a lot of income because of the various lockdowns experienced over the last two years; and 2) Supply chains remain under pressure, even before any potential further demand windfall created by these savings. We do not put as much credence in the potential for a large pickup in demand as other market participants and commentators, but we concede upside risks to US growth and inflation may emanate from this source. The bond market seems not to agree, with break-even inflation remaining under downward pressure. Nonetheless, if this upside risk scenario is realised, inflation will not be bought under control in the US unless financial conditions are made to tighten significantly.

    Much is therefore riding on the expected fall in the US fiscal impulse that supports our core view that the US economy will slow this year. Bond market pricing supports this view, in that interest rate hikes as currently priced are (according to break-even inflation rates) expected to bring inflation sustainably lower. The US data may be rolling over even now in response to the slowing fiscal impulse: retail sales, industrial production, empire manufacturing and Richmond Fed manufacturing were all weaker in January. Still, we remain wary of upside risks that would send bond yields even higher, led by real yields.

    What is interesting is that although risk assets are clearly at risk if the geopolitical backdrop worsens, they are also at risk if it does not. Upside risks to growth increase the urgency that financial conditions tighten to rein in inflation. Slower data point to a potential stagflationary scenario. 2022 is certainly shaping up as a challenging year for markets.

    To read more about eInvest Income Maximiser Fund (Managed Fund) Code: EMAX, 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.