Switzer Higher Yield Fund December 2021 Portfolio Update

Welcome to the December 2021 Investment Update for the Switzer Higher Yield Fund (Managed Fund) (SHYF or the Fund). Click here to download the report.

Performance Summary

For the month of December, the Fund delivered a return of 0.62% net of fees, compared with 0.13% for the benchmark RBA Cash Rate + 1.5%. Over the past three years the Fund has returned 2.81% p.a. net of fees, compared with 1.99% p.a. for the benchmark.

At the end of the month, the Fund had a weighted average interest rate of 1.15% compared with the actual RBA Cash Rate of less than 0.10%. The average credit rating of the Fund is A+; it has an average A ESG bond rating from MSCI; and the modified duration of the Fund is 0.05 years.

Market Commentary and Outlook

December was a strong month for the Fund as the expected mean-reversion in spreads came to pass following spread widening in November. More broadly, December caps off an unusual 12 months punctuated by a range of rare external shocks, and a pandemic that refuses to abate.

The trajectory of inflation, interest rates, and asset prices seem to be the main agenda items for 2022. In 2021 we saw 10-year government bond yields in Australia and the US lift from 0.97% and 0.91% respectively, to 1.67% and 1.51% by 31 December. A resurgence in core inflation encouraged central banks to slowly begin increasing overnight cash rates.

The US Federal Reserve recently signalled that it is likely to stop buying bonds in early 2023 and commence the process of normalising its cash rate thereafter. Locally, the RBA is weighing up stopping buying bonds in February. In our view this is all but certain (i.e., QE should end in mid-February). Yet the RBA is still reluctant to raise rates until wages growth is fast enough to keep inflation in the 2-3% target band.

Investment Objective

In the State government bond market, 10-year spreads to the Commonwealth government bond yield curve compressed from 37 bps to 33 bps over the month. All the States save Victoria reported much better budget outcomes than the market had forecast with material downgrades to future debt issuance consistent with Coolabah’s priors. The stand-out in this respect was NSW with a stunning $20 billion downgrade to debt issuance in FY2022 vis-à-vis bank estimates only a few months prior.

The Switzer Higher Yield Fund (Managed Fund) is a zero-duration bond fund which aims to provide investors an attractive cash yield with low capital volatility by investing in a portfolio of high quality and liquid fixed income securities. The portfolio is managed by Coolabah Capital Institutional Investments. The Fund aims to achieve total returns which are between 1.5% to 3.0% greater than the RBA Cash Rate after fees and expenses on a rolling 12-month basis.

Copyright © 2021 Switzer Asset Management Limited

DISCLAIMER: Switzer Asset Management Limited (SAML)(ABN 26 123 611 978, AFSL 312247) is a wholly-owned subsidiary of Contango Asset Management Limited, a financial services business listed on the ASX (CGA). SAML and CGA are authorised representatives of ST Funds Management Limited (AFSL 416778) to provide general advice. SAML is the Responsible Entity and Coolabah Capital Institutional Investments Pty Limited is the investment manager of Switzer Higher Yield Fund (Managed Fund)(ARSN 093 248 232) (the Fund).

This material has been prepared for general information purposes only. It does not contain investment recommendations nor provide investment advice. It does not take into account the objectives, financial situation or needs of any particular individual. Investors should, before acting on this material, consider the appropriateness of the material.

Neither SAML, CGA, their related bodies corporate, entities, directors or officers guarantees the performance of, or the timing or amount of repayment of capital or income invested in the Fund or that the Fund will achieve its investment objectives. Past performance is not indicative of future performance.

Any economic or market forecasts are not guaranteed. Any references to particular securities or sectors are for illustrative purposes only and are as at the date of publication of this material. This is not a recommendation in relation to any named securities or sectors and no warranty or guarantee is provided that the positions will remain within the portfolio of the Fund.

Investors should seek professional investment, financial or other advice to assist the investor determine the individual tolerance to risk and needs to attain a particular return on investment. In no way should the investor rely on information contained in this material.

Investors should read the Fund’s Product Disclosure Statement (PDS) and consider any relevant offer document in full before making a decision to invest in the Fund. Relevant information relating to the Fund can be obtained by visiting www.switzerassetmanagement.com.au. All numbers included in this document are sourced from Coolabah Capital Institutional Investments unless otherwise stated.