Managed Funds

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Australian Bond Funds May 2017

In the first week of May bond yields rose as the world’s financial markets focussed on the May meeting of the FOMC. Comments in the statement which was released after the meeting were viewed as mildly hawkish, but this did not stop yields from beginning to steadily fall. The lid was kept on European bond yields as the ECB stated it had no plans to cut back on its bond-purchasing habit. The Australian budget dominated local market thinking for about a week as offshore markets went quiet and S&P affirmed Australia’s AAA credit rating (with a negative outlook). In the second half of the month, U.S data were somewhat on the soft side and President Trump then found new and innovative ways to create or be associated with political uncertainty, all of which was supportive of lower yields.

The net effect over the month, bond yields were lower in all major markets, except in the U.S. where yields at the front of the curve rose a little. In the U.S., the yield on 2 year bonds rose 1bp to 1.28% while 10 year bond yields fell 7bps. The U.S-Australia spread tightened by 12bps to 21bps as the local 10 year yield dropped quite a bit more than its U.S. counterpart. The Australian 10 year yield (implied by June futures) fell by 19bps to 2.42% while the 3 year yield was 16bps lower at 1.67%.

As a result, all Bloomberg AusBond indices were in positive territory at the end of May but, unlike April, returns were more bunched. The Government Bond index produced the highest result (1.32%) for a second month in a row. The Composite Bond Index returned 1.17%, which made it the second-highest ranked index, also for the second month in a row. The Corporate Bond and Semi-Government indices returned 1.04% and 1.03% respectively and the closeness of these indices’ returns was similar in nature to their returns in April. This pattern did not extend to the FRN and Bank Bill indices; the 0.28% return of the FRN Index was almost double the 0.15% return of the Bank Bill Index.

Hence May was another good month for bond funds and all funds without exception in the survey produced positive returns. Macquarie’s Core Plus Australian Fixed Interest fund produced the highest return in May (1.47%), BT’s Government Bond Fund returned 1.40% to rank it in second place and the Mercer Australian Sovereign Bond Fund returned 1.32% for third position.

Over a 1 year period, the first three rankings were unchanged from April. The Alexander Credit Opportunities fund was again ranked first with 7.38% and Spectrum’s Strategic Income fund retained its second position with a return of 5.25%. Legg Mason’s Western Asset Australian Bond Trust kept its third-ranked position with 2.89%.

AUSTRALIAN FIXED INTEREST FUNDS

AUSTRALIAN FIXED INTERESTASX
mFund
1m (%)3m (%)1y (%)3y (%)5y (%)
Aberdeen Australian Fixed Incomemfund1.182.442.314.714.39
Advance Aus Fixed Interest Multi-Blend1.112.131.343.223.33
AMP Capital Corporate Bondmfund0.360.833.973.354.82
Alexander Credit Opportunities Fund0.461.697.387.589.71
Alpha Enhanced Yieldmfund0.561.404.932.584.07
AMP FLI S2-AMP Australian Bond1.082.101.933.644.00
AMP Gen-BlackRock Aust Fixed Int Ind1.042.031.323.633.28
Altius Bond0.441.131.653.193.87
BT Enhanced Credit WS0.962.103.594.685.08
BT Fixed Interest Retail1.202.271.163.493.06
BT Fixed Interest WS1.272.501.704.443.97
BT Government Bond1.402.671.834.753.88
CFS FC Inv-Aberdeen Aus Fixed Inc1.112.171.483.623.28
CFS FC W Inv-CFS W Australian Bond1.092.242.083.834.13
DDH Fixed Interest1.192.432.324.404.57
Spectrum Strategic Incomemfund0.431.365.254.987.41
Jamieson Coote Bonds Active0.982.392.03
Legg Mason Western Asset Australian Bond Trust Amfund1.182.422.894.975.24
Macquarie Australian Fixed Interest1.152.382.844.884.99
Macquarie Core Plus Australian Fxd Intr1.473.023.924.824.96
Mercer Australian Sovereign Bond Fund1.322.731.964.843.86
Nikko AM Australian Bond1.192.382.604.664.56
Omega Core Australian Bond Fund1.142.312.514.644.20
OnePath OA FR IP-Optimix Aus Fixed Int1.092.222.294.064.04
Henderson Australian Fixed Interest Tr1.072.332.744.685.18
Henderson Fixed Interest Wholesale1.062.312.634.565.06
Henderson Tactical Income Trust0.391.112.983.244.50
Perpetual WFIA-Schroder Fixed Income0.951.731.392.723.08
Perpetual WFIA-Vanguard Aust FI Idx1.052.031.193.523.16
PIMCO EQT Wholesale Australian Bond Bmfund1.112.312.684.874.48
PIMCO EQT Wholesale Australian Focus Bmfund0.661.602.683.483.56
SSgA Australian Fixed Income1.142.322.374.724.25
UBS Australian Bondmfund1.182.492.844.544.45
Vanguard Australian Fixed Interest Index1.131.192.314.644.27
Vanguard Australian Govt Bond Index1.191.061.884.693.96
Bloomberg AusBond Composite 0+Y TR AUD1.172.382.504.854.48

*End of May 2017. Return in AUD after fees

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