Australian Bond Funds February 2016

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Australian Fixed Interest February Performance

February was a repeat of January from the point of view of falling bond yields around the globe.  Thing started off normally and the first week passed without anything of note. However, rumours then emerged of an unknown German bank in trouble (which ironically turned out to be Deutsche Bank – the translation of Deutsche is “German”) and banking shares were smashed in all major equity markets. The result was major distrust of all equities and funds were moved to bonds issued by sovereigns and high quality issuers. Japanese 10 year bond yields went into negative territory.

In January US 10 year bond yields had dropped 35bps, in February they dropped 19bps to finish the month at 1.73%. 10 year government bond yields of other major industrialised countries, except for Italy, acted in a similar fashion and fell not quite as heavily as in January but the falls were sizable all the same. The UK’s 10 year yield fell 22bps to 1.34%, Germany’s fell 22bps to 0.10% (almost looking Japanese), France’s fell 18bps to 0.46% and Japanese yields fell 17bps to -0.07%. Italian yields were effectively steady at 1.41%.  Australian 10 year bond yields fell pretty much in line with these other countries’ yields and finished the month down 18bps to 2.40%.

In January one bond fund had a negative return despite the massive (yield) drops. Although bond yields dropped less in February, every fund in the YieldReport survey managed to keep out of the red and the median return for the month was 0.82%. Given the state of global bond markets and the desire of investors for safety, it is no surprise the Mercer Australian Sovereign Bond Fund was the best performer in the Australian Fixed interest segment. It is a “fund of funds” and, as at the end of February, appears to have borrowed roughly 7% of the fund’s value in order to go hard in their designated investment sphere, which is the domestic fixed interest markets. The fund returned 1.25%, beating the Bloomberg AusBond Composite 0+ benchmark by 22bps. Its performance over longer periods is somewhat less impressive; it is ranked close to the median of funds in YieldReport’s survey for 1, 3 and 5 year periods.

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AUSTRALIAN FIXED INTEREST1m (%)3m (%)1y (%)3y (%)5y (%)
Aberdeen Australian Fixed Income0.862.582.985.226.53
Advance Aus Fixed Intr Multi-Blend0.762.101.413.804.86
AMP Capital Corporate Bond0.03-0.080.924.296.24
Alpha Enhanced Yield0.27-0.13-2.232.123.07
AMP FLI S2-AMP Australian Bond0.922.031.164.456.27
AMP Gen-BlackRock Aust Fixed Int Ind0.922.281.804.195.58
Altius Bond0.751.632.493.850.00
BT Enhanced Credit WS0.511.772.675.276.95
BT Fixed Interest Retail0.762.211.164.005.55
BT Fixed Interest WS0.712.031.925.236.77
BT Government Bond1.052.872.305.206.78
CFS FC Inv-Aberdeen Aus Fixed Inc0.802.291.804.025.40
CFS FC W Inv-CFS W Australian Bond0.561.582.864.505.54
DDH Fixed Interest0.812.102.155.006.59
Spectrum Strategic Income Fund1.152.033.465.897.14
Jamieson Coote Bonds Active1.072.734.83
Legg Mason Western Asset Australian Bond Trust A0.932.452.965.747.34
Macquarie Australian Fixed Interest0.892.452.795.307.03
Macquarie Core Plus Australian Fxd Intr0.761.40-0.094.266.08
Mercer Australian Sovereign Bond Fund1.253.132.555.136.50
Nikko AM Australian Bond0.982.492.465.276.50
Omega Core Australian Bond Fund0.922.342.674.93
OnePath OA FR IP-Optimix Aus Fixed Int0.781.941.774.586.09
Henderson Australian Fixed Interest inst0.822.313.315.446.96
Henderson Australian Fixed Interest0.812.283.205.326.86
Henderson Tactical Income0.130.722.573.975.06
Perpetual WFIA-Schroder Fixed Income0.611.380.203.244.91
Perpetual WFIA-Vanguard Aust FI Idx0.932.251.684.065.40
PIMCO EQT Wholesale Australian Bond B0.721.962.244.986.73
PIMCO EQT Wholesale Australian Focus B0.290.961.913.524.89
SSgA Australian Fixed Income1.012.602.815.186.61
UBS Australian Bond1.032.52.785.016.46
Vanguard Australian Fixed Interest Index1.032.562.765.206.59
Vanguard Australian Govt Bond Index1.232.872.875.206.65
Bloomberg AusBond Composite 0+Y TR AUD1.032.612.965.396.81

*End of February 2016. Return in AUD after fees
Underlined funds can be applied for and redeemed via the ASX mFund platform

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