Tuesday 19 July 2016 by FIIG Research At FIIG

Successful investment strategies deliver MIPs’ performance

The end of the financial year marks the first anniversary of the Managed Income Portfolio Service, Australia’s first Independently Managed Account (IMA) in the fixed income space. MIPS Portfolio Manager Kieran Quaine provides insight into the investment strategies he employs for the investment programs under his direction, the returns delivered, and growth in the MIPS funds under management 

MIPS returns approach 6% net of fees and FUM now exceeds $100m

MIPS returns  Program
  Income Plus Core Income Inflation Linked  Conservative Income 
Program returns (gross) 6.96% 6.33% 4.04% Program commenced May 2016
Program management & custody fee 1.05% 0.85% 0.85%
Program returns (net) 5.91% 5.48% 3.19%
Note: Returns are the average annualised returns across each program for the 4 months from 1 March 2016 to 30 June 2016
Total funds across all programs is $103.6m

Elizabeth Moran talks to Kieran Quaine, the portfolio manager and Head of MIPS 

EM In this low yielding environment, where term deposit returns are less than 3%, MIPS returns for the period are impressive. How you have done it?

KQ The returns achieved are a direct result of implementing of a strong and robust investment process. The investment process strategy aims to increase diversity by investing in a greater range of bonds throughout the capital structure and the individual companies issuing them.

The performance was derived from 2 component parts:

  1. The yield curve rallied and the programs’ long dated fixed rate assets benefitted
  2. Sub debt outperformed unrated bonds

EM: How do you balance the exposure between IG, unrated and subordinated debt in the portfolios?

KQ: I set the unrated exposure below the maximum program levels directing capital into investment grade (IG) rated subordinated debt, while at the same time maximising the number of individual exposures to uncorrelated companies within all sectors: senior IG rated, the subordinated rated and unrated debt sectors. The average number of bonds is close to 25 bonds in the Income Plus Program, made possible by parcel size advantage of the FIIG DirectBond service. Diversity is the key risk management tool for fixed income portfolios.

A detailed explanation of the investment process was communicated in this publicationExternal link - opens in a new window to clients of MIPS.

EM Managing 58 accounts across four programs and some large customised mandates sounds like a significant task. Was the actual implementation of the strategy difficult?

KQ Yes, it was somewhat complex, but was made easier by the use of computer modelling.  Because there is a commonality of bonds that can be invested across programs, we can transact with a scale advantage.

For example, when we alter the unrated exposure, the programs that invest in that space, being the Income Plus and Core Programs, will move in unison, according to their proportional exposure. The Core Income Program for example, will always hold 20% of the unrated exposure that the Income Plus Program will.

The investment process is one that is applied seamlessly to each program and each investor portfolio, independent of the size of capital invested. Each investor in the same program will always have the same percentage exposure to individual bonds – and therefore individual capital structure components as their peers.

EM So how can investors find out more about MIPS?

KQ Everything they need to know is contained here.External link - opens in a new window

A FIIG client relationship manager will answer any questions investors might have, and be the ongoing main point of contact.

EM Thanks for your time. I look forward to further discussions and observing how MIPS grows and performs in the future.