Thursday 25 January 2018 by Kieran Quaine At FIIG

MIPS results for 2017 and strategies for the coming year


The US economy continues to drive global growth.  We believe global interest rates will experience upward pressure if market expectations of the pace of the Fed hikes increases.

However, we forecast that the RBA may delay lifting the official cash rate, but the yield curve will nonetheless steepen and may well do so progressively from the three year point of the yield curve.

Subsequently, we position our portfolios in the short duration target range of two to three years, given the forecast portfolio performance outcomes should base interest rates rise or fall. Strategically avoiding the potential poor performance and devaluation of long term fixed rate bonds. This continues our successful 2016 strategy that worked well up until the 4Q17.

MIPS Strategy for all programs

  1. Short duration awaiting higher (base) rates before extending
  2. Selectively long credit exposure

Key themes:

  • US and AUD interest rate positive correlation is unravelling slowly
  • Interest rate directional view (duration strategy) is unchanged
  • Credit margin and credit exposure strategies are unchanged
  • Increased allocation to Residential Mortgage Backed Security assets

Program NET returns for the quarter ended 31 December 2017

The MIPS Investment Programs of Conservative Income, Core Income, Income Plus and the various Customised Mandates that include the Bank Bond Programs, invested amongst a universe of approximately 70 assets (that were held within the programs for the entire calendar year), all of which, with the exception of one, rallied over that period.

In summary, we believe investment grade credit margins will outperform non investment grade credit margins, and senior debt will outperform subordinate debt. Combining this with our interest rate view, we will be reluctant to take long duration, low rated credit risk.

For the full report, please click here.

Please contact your local dealer or call 1800 01 01 81 if you’d like to learn more regarding any of the programs.