Anthony Kirkham, head of investment management/head of Australian operations for Western Asset Management, said although the fund underperformed the benchmark during March and April, primarily due to an overweight in corporate credit, the strategy recovered ground in May and June.
“The strategy has recovered ground quickly in May and June with the portfolio positioned to take advantage of potential spread contraction as well as tactically trading around what we see as a range bound markets for yields,” Kirkham said.
Kirkham said the overweight to credit ahead of the COVID-19 pandemic was focused on short-dated credit.
“This was initially impacted by the liquidity drain that impacted all markets but once the market normalised this was quick to revert in most cases,” Kirkham said.
“At the same time, and during the dysfunction, we took the opportunity to lean into credit in names that we felt had been unduly impacted relative to its fundamentals, particularly in the infrastructure and utility sectors, and selectively within REITS [real estate investment trusts].
“This has also been a large contributor to our outperformance in recent months.”
David Ashton, senior portfolio manager on the Macquarie Core Australian Fixed Interest fund, said March was an unprecedented period for financial markets with liquidity challenges impacting even the highest-quality government bond markets.
“Credit strategies were also extremely challenged with a dramatic widening in spreads in very poor liquidity,” Ashton said.
“As a result, many strategies that were over-reliant on duration calls or credit beta to generate excess returns suffered significant underperformance.”
