FMOTY 2023: Spotlight on Australian Fixed Income

Ahead of the 2023 Fund Manager of the Year Awards on 22 June, Money Management spoke to finalists of the Australian Fixed Income Fund of the Year.

The finalists in the category are:

• Janus Henderson Australian Fixed Interest 
• Macquarie Australian Fixed Interest 
• Pendal Sustainable Australian Fixed Interest
• Western Asset Australian Bond 
• Yarra Enhanced Income

Click here to view the full list of finalists.

Roy Keenan, portfolio manager on the Yarra Enhanced Income Fund, said the firm had navigated over 20 years of market environments that had allowed it to develop a proven process.

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“The fund will turn 21 later this year, during which time it’s navigated a crisis or two! It has a proven process that has evolved and adapted to today’s environment. Most of all we take great satisfaction in continuing to deliver quality outcome for our clients,” Keenan said.

While the fund had been on the right side of the rising interest rates, it said it could not have predicted how aggressive central banks would be.

“From an investing perspective, the spike in inflation and the tightening cycle by central banks has not been a surprise to us. While we were on the right side of the move higher in rates, there was no way of predicting how aggressive central banks were going to be,” Keenan said.

“Our focus was on generating quality income with a defensive mindset. With a slowing economy our focus has been on avoiding those sectors that will struggle with higher interest rates.”

For the Western Asset Australian Bond Fund, the firm said the fund is run in a way that emphasised conviction combined with risk management oversight to ensure those positions aren’t overemphasised.

Its management team has an average of 26 years of industry experience and nearly 18 years with the firm.

“In the most recent period in particular, this approach has allowed the investment team to maintain conviction through a period of elevated volatility, rapid shifts in sentiment, and market pricing. Our investment case has played out in our favour particularly over the past six months with tactical moves around our base case adding additional value,” it said.

Over at Macquarie, the Macquarie Australian Fixed Interest Fund said it is differentiated by being able to utilise returns from multiple sources. 

“Our research has shown that attempting to extract too much of a portfolios’ returns from a single source usually results in lower returns, and therefore we focus on incremental returns using many levers,” it said.

“Our approach means that we tend to not rely on macro calls to drive returns and actively avoid layering in correlated risk that make returns less reliable.”

Looking ahead to the next 12 months and how they expect the environment to play out, Macquarie feels the rate tightening cycle would be coming to an end and is positioning accordingly.

“Thematically we observe the aggressive tightening cycle from central banks globally to be nearing an end, and the peak in interest rates should see duration well supported. To reflect this, we will focus on adding interest rate risk to portfolios that will benefit from a turn in the cycle and a lowering in interest rates with the aim of producing attractive returns,” it said.

“We see our positioning in credit securities as defensive and will look to use further volatility in financial markets as an opportunity to build allocations to credit securities to increase portfolio yields.”

However, Yarra’s Keenan is nervous about what the future impact would be of all the recent rises and whether it would turn out to be a policy mistake.

“We remain cautious on the outlook for the economy. While we think corporate Australia and the consumer were generally well positioned to handle a rise in rates, recent hikes from the RBA might well be a policy mistake. It starts to raise doubts on whether the RBA can engineer the soft landing for the economy,” Keenan said.
 
“In some ways this will delay our decision to add risk and move away from our defensive approach. Yarra’s inflation forecast is a bit more optimistic than the RBA, and hence we feel that cash rates will be lower in a year’s time.”

Winners of the 2023 Fund Manager of the Year Awards will be announced on Thursday, 22 June 2023 at a black-tie gala awards ceremony at The Star in Sydney.

Click here to buy tickets to the awards ceremony.