Wednesday 12 April 2023 by Jessica Rusit Trade opportunities

Retail Sample Portfolio Update – April 2023

An interesting month for markets, with a banking crisis sending yields lower and the Reserve Bank of Australia (RBA) diverging from other central banks. The Sample Retail Portfolio continues to provide an attractive higher return at 5.91%*. Here we discuss the changes made to the Sample Retail Portfolio for the month of April.

Retail Update

A lot was packed into the past month with the collapse of Silicon Valley Bank (SVB) followed by UBS acquiring Credit Suisse on stability concerns, sending markets into a tailspin. It serves as a reminder to investors of the importance of a sensible asset allocation that will weather such storms.

However, the fight to tame inflation continued with the US Federal Reserve (Fed), European Central Bank (ECB) and Bank of England (BoE) all raising rates. This month has seen the Reserve Bank of New Zealand (RBNZ) hike rates too (and by a whopping 50 basis points at that!), and yet our central bank has taken a pause. It’s yet to be seen if this is a short breather or something more permanent…

With this backdrop, yields have tightened from recent highs, with the Sample Retail Portfolio now yielding 5.91%*. This remains attractive, especially considering the portfolio has a 95% allocation to investment grade bonds. Due to their defensive nature, these bonds generally perform well in times of market stress, as has been the case recently with an uplift in their capital price.

Over the month the below additional bonds were added to the retail product offering:

  • MPC-IAB-31Dec25 Senior secured
  • MCP-IAB-31Dec33 Senior secured
  • Liberty-BBSW+2.35%-26Feb24 Senior unsecured

Retail Sample Portfolio

The Sample Retail Portfolio is a balanced portfolio, where we include a mix of investment grade and selective 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 higher yielding bonds in smaller parcel sizes to reflect their assumed higher risk. Currently the portfolio holds 14 bonds, which provides better diversification.

The portfolio yields an indicative 5.91%* to the assumed maturity dates and is an approximate $212k spend.

While in last month’s update, which can be read here, we actively moved the portfolio around, this month we have taken a lighter approach and made no changes. For the most part, once a portfolio has been constructed, it’s a matter of collecting the coupons and no changes really need to be made unless the right opportunities are present or there is movement in the portfolio via redemptions etc.

We like the recently available MPC (Melbourne Convention Centre) indexed annuity bonds (IAB) and Liberty floating rate notes (FRNs), both investment grade rated) that were recently made available to retail, but already with an IAB exposure (in the form of Royal Women’s Hospital) and a full FRN allocation we haven’t included them.

We continue to see value in longer dated fixed rate bonds, where most of any rate movement has already been priced in and continue to look for opportunities to add. Also, as noted earlier, these investment grade bonds generally will see an improvement in capital price during market volatility.

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.

Please note the indicative yield shown is the expected yield to the assumed maturity/call dates of the bonds included in the portfolio.