With yield curve moves over the month the portfolio looks even better value than it did in March with the headline yield at 4.92%*. Here we provide an update on the Sample Retail Portfolio for the month.
Rate hike speculation continued to drive markets over the month, following hawkish central bank comments and higher inflation concerns. Government bond yields pushed higher as a result, with the Australian government 10-year bond yield up 30 basis points (bps) since the beginning of March.
At its April meeting the Reserve Bank of Australia (RBA) dropped its previous ‘patient’ stance, while US Federal Reserve (Fed) members sent strong signals that the Fed would hike rates by 50bps at its early-May meeting.
With the yield curve moving higher, we’ve seen the returns on the fixed coupon bonds in the Sample Retail Portfolio improve and offer even better entry points.
FIIG made an additional two bonds retail available over the month, including the Liberty Financial floating rate note, which pays a quarterly coupon of 3month BBSW plus 2.45%. The Lendlease 2031 bond was also added to the retail product offering, which has a green certification, and pays a semi-annual fixed coupon of 3.70%.
Retail Sample Portfolio
The Sample Retail Portfolio is a balanced portfolio, where we include a mix of investment grade and higher-yielding exposures while still maintaining a balance between risk and return, skewed towards preserving capital rather than chasing yield.
It aims to have around 10 positions, with the high yielding bonds in smaller parcel sizes to reflect their assumed higher risk. However, with only one sub-investment grade allocation currently in the portfolio, it is a larger exposure.
The current portfolio has 11 bonds, yields 4.92% indicatively to worst* and is an approximate $200k spend.
Lendlease’s longer dated green certified bond was recently added to the retail offering and we have since added it to the portfolio. While it provides an attractive return at an indicative yield of 4.94% to maturity, it also offers the portfolio an environmentally responsible exposure.
As we’re happy with the portfolio’s existing positions, we trimmed our allocation to the Qantas 2030 bond by $5k, and halved our Pacific National floating rate note exposure to $10k to make room for a $15k allocation to Lendlease 2031.
Although we aim to hold a maximum of 10 bonds, this additional holding provides the portfolio with better diversification and allows us to maintain a similar weighting to fixed coupon bonds and floating rate note exposures.
The Sample Retail Portfolio, along with the full list of retail available bonds (and Fact Sheets from our FIIG Credit Research Team on each bond), can be found on the FIIG Website here.