Tag: Australian Market
Fund Objective
To outperform the Bloomberg AusBond Composite 0+Yr Index after fees over the medium term.
Approach
Schroders begins by formulating long-term (10-year) risk/reward forecasts using a building-block approach that includes current yield, long-cycle economic growth, and inflation. These figures are adjusted to shorter term forecasts (three years) based on a proprietary three-factor model that considers valuation, cycle, and liquidity characteristics to identify best- and worst-case risk-adjusted opportunities. Broad risk allocations between cash, bonds, and credit are consequently generated. The team then determines the appropriate trades and physical securities. Risk/reward forecasts dictate positions in duration and curve (domestic and other yield curves), cross-market trades (spread compression between assets in varying geographies), and credit selection (investment-grade, securitised, high yield, and emerging markets). Credit assessment focuses on market position, management quality, firm profitability, and capital structure. The strategy is mostly process-driven, and the long-term capital preservation mindset is a point of differentiation.
Portfolio
A wide remit of securities can be held, including government, semigovernment securities, investment-grade credit, high-yield, emerging-markets bonds. Derivatives can be used to express credit, rate, and curve views. The team’s caution over valuations saw it hold more cash than most of its cohorts with a short duration bias through most of 2010-18, sizeable at times. Schroders has long held an underweighting in government and government-related securities in lieu of corporate credit, inflation-linked bonds, and cash. As spreads compressed, investment-grade credit fell steadily to 12% in April 2017 from 42% in August 2010. Schroders waded back in to capitalise on more-attractive valuations as global policy support followed in early 2020. It shortened interest-rate duration significantly in early 2021 as concerns over inflationary pressures bubbled to the surface, before softening this stance amid questions over its persistence. By the third quarter of the year, Schroders’ view that higher inflation was more structural saw it re-enter a more-entrenched short-duration stance. Holdings in non-Australian bonds has tended to be about 10%-15%. This vehicle can be used as a core exposure given it mostly holds high-grade bonds. Schroders managed about AUD 2.8 billion in this strategy at 30 June 2021
Performance
The strategy has had its share of ups and downs over the years, with strong results during 2019-20 offsetting a fallow run that preceded it. The absolute return focus and cautious posture cost relative performance as yields and spreads broadly tightened during 2014-18, notably its short-duration position particularly in the US and preference for cash. An average cash weight of about 20% from 2009 to 2019 was a major drag, though this weighting declined noticeably after 2016. By contrast, the move to a long-duration position in early 2019 helped as yields declined and Schroders handled the volatile conditions in 2020 adeptly. Its long duration position in early 2020 helped it navigate the initial phase of the pandemic, supported by a reduction in credit risk. Its quick reallocation to credit as spreads widened helped sustain outperformance through the rest of the year. An indexlike result over the majority of 2021 saw the team navigate the choppy moves in yields particularly well over the first half of the year before being stung as shorter-maturity yields leapt exponentially higher after the RBA suddenly decided to exit yield-curve control in the third quarter. The strategy has done well in down markets because of the higher-quality portfolio and focus on downside protection. Its high-conviction approach can contribute to meaningful and lengthy deviations from its cohort.
Top Holdings
About the fund
The Fund is an actively managed, low volatility strategy that invests in a range of domestic and international fixed income assets with the objective of outperforming the Bloomberg AusBond Composite 0 Yr Index, whilst delivering stable absolute returns over time. The Fund adopts a Core-Plus investment approach whereby a core portfolio comprising Australian investment grade bonds is complemented by investments in a diverse range of global and domestic fixed income securities.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Investment Objective
Vanguard Ethically Conscious Australian Shares Fund seeks to track the return of the FTSE Australia 300 Choice Index before taking into account fees, expenses and tax.
Approach
This fund seeks to provide broad ESG-focused Australian share market exposure in a passively managed, taxefficient vehicle. To achieve that goal, it uses an index-replication approach to track the FTSE Australia 300 Choice Index, a derivative of the FTSE Australia 300 Index. The index is arrived at by excluding companies that deal significantly in business activities involving fossil fuels, nuclear power, alcohol, tobacco, gambling, weapons, and adult entertainment. Additionally, a screen is also applied to filter out names embroiled in severe controversies. Vanguard holds all the securities that make up the index with industry-level exposure limit set at 5 percentage points relative to the parent index. Security weights are approximately the same proportion as the index’s weights. However, the portfolio will deviate from the index when the managers believe such deviations are necessary to minimize transaction costs. The fund may also be exposed to securities that have been removed from or are expected to be included in the index.
Portfolio
The portfolio is top-heavy, with about half of the index in the top 10 companies. The concentration in banks skews the fund’s sector weights, with financial services forming around 34.5% of the portfolio (versus 26.8% for the Morningstar Category average). The basic material is the second-largest sector exposure, but it is meaningfully lower than the category index because of the ESG screening. The industry capping of 5 percentage points further adds to the portfolio diversification. VETH’s market cap does not deviate materially from the category average or index. As such, the average market of the strategy is AUD 25.3 billion versus AUD 29.2 billion for the S&P/ ASX 200 Index category benchmark. Broadly, the portfolio is diversified and offers exposure to almost the entire opportunity set of the domestic equity market. As a result, it has significant overlap with Vanguard’s other broad-based domestic equity products like VAS, both in terms of style and exposure, making it suitable as a core holding.
Performance
Launched in October 2020, the strategy has a very short track record. The trailing nine-month period has been eventful for the domestic equity market with yields moving up and value factor rotation. As such, the fund’s performance has been eventful as well in tandem with broader market movements. From its inception through July 2021, the strategy has closely mirrored the underlying index but trailed the S&P/ASX 200 category benchmark by 87 basis points. As the materials, energy, and commodity sectors rallied during this period, the fund’s relative underweighting in these sectors has hurt performance. As the value factor rebounded toward the end of last year through the first half of 2021, the modest growth tilt of the strategy relative to the category index detracted. Growth names like A2 Milk have been the major contributor to underperformance during this period. Investors should be cautious and not extrapolate this performance, however. Based on the past attributes, investors may expect similar cyclicality in performance tied to the broader domestic economic activities and value/growth factor rotation.
Top 10 Holdings of the fund
About the fund
The Fund provides low cost exposure to stocks listed on the Australian Securities Exchange (ASX) and excludes companies with significant business activities involving fossil fuels, nuclear power, alcohol, tobacco, gambling, weapons, adult entertainment and a conduct related screen based on severe controversies. Diversification requirements are applied to restrict the proportion of the index invested in any one industry to +/-5% of the industry weights of the FTSE Australia 300 Index, subject to any limitation issues resulting from the exclusionary screening.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
On 17 November 2021, CDO listed on the ASX. The Company raised $15.55m as part of the IPO Offer, issuing 5.6m shares at a price of $2.7716 per share (the mid-point of the of the NTA at 31 October 2021). The Company has 15.06m shares on issue and a market cap of $41.9m as at 30 November 2021.
The average stock in the ASX 200 is down over 15% whilst the index is down only 1%. Generally speaking, larger capitalization value-style stocks have held up well whilst smaller capitalisation and growth-style stocks have experienced significant retracement and a reversal in trend.
CDO provides exposure to an actively managed long/short portfolio, with a long bias, of Australian and international securities. Cadence Asset Management Pty Limited (Cadence) is the Manager of the portfolio. Cadence manages the portfolio of Cadence Capital Limited, which listed in 2006, using a similar investment philosophy and process that is used for the CDO portfolio. The Company has two stated investment objectives: (1) provide capital growth through investment cycles; and (2) provide fully franked dividends, subject to the Company having sufficient profit reserves and franking credits and it being within prudent business practices.
Cadence Opportunities Fund was down 2.1% in December, compared to the All Ordinaries Accumulation Index which was up 2.7% for the month. The Company has had a strong start to FY22 with the fund up 21.1% over the first six months of the year, outperforming the All Ordinaries Accumulation Index by 16.5%.
The Board has declared a 7.5 cents fully franked half year dividend, an annualised increase of 25% on last year’s ordinary dividends, reflecting the strong performance of the company over the current year. The current share price is $2.92 and interim dividend equates to a 5.1% annualised fully franked yield or a 7.3% gross yield.
(Source: FN Arena)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.