In our series of fund manager profiles, we speak to Damien Wood, Head of Research at Spectrum Asset Management. Spectrum manages the Strategic Income Fund, a fund which is focused on generating income returns for unit holders.
Damien has over 25 years of experience working in global credit markets in Australia and Asia. He has an MBA from the University of Queensland and has previously worked for Credit Suisse as Head of Asia Pacific Credit Research.
YR: Welcome Damien. The Strategic Income Fund has an active cash strategy which has returned 5.2% after fees for the 12 months to 30 November, yet term deposits have averaged around 2.3% and the RBA cash rate averaged around 1.5%. What’s been the mix of income and capital growth in that return?
SAM: After fees, income was 3.2% and capital growth was 2.0%.
YR: What was your best performing part of the portfolio over the 12 months? What were the return metrics for this?
SAM: Bank and insurance capital has performed well. The total returns for this sector was around 8.5% over the last 12 months.
YR: Will you take us through the different market phases and your portfolio positioning over the last 12 months?
SAM: We see we are nearing the end of the credit cycle, in particular in Australia. Given this, we have attempted to diversify the portfolio to make it more resilient. In particular we have invested more in infrastructure assets and “kangaroo” bonds; that is, offshore companies which issue bonds denominated in Aussie dollars. We also have kept the credit quality high with an average “A” rating. Should the credit cycle in Australia turn we believe we are well-positioned.
YR: The fund’s net return over the last 12 months was 5.24% p.a. Have there been any negative monthly returns during this period?
SAM: No. The fund has had 24 consecutive returns to November 2017.
YR: The last losses were in November 2015 when the fund returned -0.4%. What were the factors behind that return?
SAM: The key driver was a collapse in oil and other commodity prices. Not only did this impact on the financial health of many mining companies, sovereign wealth funds from commodity-rich countries were dumping assets globally. This negative sentiment spilt over into the local corporate bond market. We made back the loss in the following month.
YR: What type of investors do you think your fund would suit?
SAM: Those investors seeking more income than provided by term deposits, who want less volatility than equities and who may wish to redeem their investment at any time.