Welcome to the March 2022 Investment Update for the Switzer Higher Yield Fund (Managed Fund) (SHYF or the Fund). Click here to download the report.
For the month of March, the Fund delivered a return of -0.07% net of fees, compared with 0.13% for the benchmark RBA Cash Rate + 1.5%. Over the past three years the Fund has returned 2.21% p.a. net of fees, compared with 1.87% p.a. for the benchmark.
At the end of the month, the Fund had a weighted average interest rate of 0.91% compared with the actual RBA Cash Rate of less than 0.10%. The average credit rating of the Fund is A+; it has an average A ESG bond rating from MSCI; and the modified duration of the Fund is 0.30 years.
Market Commentary and Outlook
March 2022 officially became the worst month in history for the Aussie bond market, as judged by the fixed-rate AusBond Composite Bond Index which fell a staggering 3.75%. It was also the third-worst month in the 24-year history of the AusBond Floating-Rate Note (FRN) Index, which fell 0.29%.
This continues a string of losses for bond markets on the back of rising interest rates and wider credit spreads, with the Composite Bond Index down 5.88% over the March quarter. The FRN Index declined in both February and March as well. Over the 12 months to 31 March 2022, the Composite Bond Index lost 5.5% while the much lower volatility FRN Index declined 0.04%.
Australia’s 10-year government bond yield has jumped by more than 180 basis points (bps) from 1.08% in August 2021 to a peak of around 2.9% in March 2022. Over the month of March 2022, 5-year major bank senior bond spreads jumped from 73bps over the quarterly bank bill swap rate to 90bps.
Aussie credit was playing catch-up to the USD and EUR investment-grade (IG) bond markets, where spreads had been moving sharply wider since January. In 2022, EUR IG corporate spreads have exploded 65bps wider at their peak in March, although they have since retraced about 30bps to be net 35bps higher. US corporate IG spreads moved similarly, climbing about 50bps at their peak in mid-March, following which they have compressed about 30bps.
Global equities suffered in 2022 as a consequence of the much higher discount rates. The S&P500 was down as much as 14% in calendar year-to-date in mid-March. By the end of March it had recovered some of these losses to close the quarter down 5.2%. Life has been more challenging for growth stocks, with the NASDAQ Composite Index losing 20% in price terms at its lowest point in mid-March (relative to its closing 2021 level). It has since recovered to be down 9.1% in the year-to-date.
In the State government bond market, 10-year spreads to the Commonwealth government bond yield curve compressed from 37 bps to 33 bps over the month. All the States save Victoria reported much better budget outcomes than the market had forecast with material downgrades to future debt issuance consistent with Coolabah’s priors. The stand-out in this respect was NSW with a stunning $20 billion downgrade to debt issuance in FY2022 vis-à-vis bank estimates only a few months prior.
The Switzer Higher Yield Fund (Managed Fund) is a zero-duration bond fund which aims to provide investors an attractive cash yield with low capital volatility by investing in a portfolio of high quality and liquid fixed income securities. The portfolio is managed by Coolabah Capital Institutional Investments. The Fund aims to achieve total returns which are between 1.5% to 3.0% greater than the RBA Cash Rate after fees and expenses on a rolling 12-month basis.
DISCLAIMER: AGP Investment Management Limited (AGP IM) (ABN 26 123 611 978, AFSL 312247) is a wholly owned subsidiary of Associate Global Partners Limited (AGP) (ABN 56 080 277 998), a financial institution listed on the ASX (APL). AGP IM is the Responsible Entity and Coolabah Capital Institutional Investments Pty Limited (CCI) is the investment manager of Switzer Higher Yield Fund (Managed Fund)(ARSN 093 248 232) (the Fund).
This material has been prepared for general information only. It does not contain investment recommendations nor provide investment advice. It does not take into account the objectives, financial situation or needs of any particular individual. Investors must, before acting on this material, consider the appropriateness of the material.
Any references to ‘We’, ‘Our’, ‘Us’, or the ‘Team’ used in the context of the portfolio commentary, is in reference to CCI, as investment manager for the Fund.
Neither AGP IM, AGP, their respective related bodies corporate, directors, officers, employees, agents or advisers guarantees the performance of, or the timing or amount of any repayment of capital or income invested in the Fund or that the Fund will achieve its investment objectives. Past performance is not indicative of future performance.
Any economic or market forecasts are not guaranteed. Any references to particular securities or sectors are for illustrative purposes only and are as at the date of publication of this material. This is not a recommendation in relation to any named securities or sectors and no warranty or guarantee is provided that the positions will remain within the portfolio of the Fund.
It is recommended that investors seek professional investment or financial or other advice to assist the investor determine the individual tolerance to risk and the investor’s need to attain a particular return on investment. In no way should the investor rely on information contained in this material.
Investors should read the Fund’s Product Disclosure Statement (PDS) and consider any relevant offer document in full before making a decision to invest in the Fund. The Fund’s Target Market Determination and other relevant information can be obtained by visiting www.associateglobal.com. All numbers included in this document are sourced from CCI unless otherwise stated.