Wednesday 13 September 2023 by Jessica Rusit an image of a tree with long branches Trade opportunities

Retail Sample Portfolio Update – September 2023

It was another relatively quiet month by market standards, with Central Bank tightening widely believed to be done and data releases supporting this. With a steady rate outlook, yields crept lower and the Sample Retail Portfolio now yields 6.33%*. Here we discuss the portfolio for the month of September. 

With the view the US Federal Reserve (Fed) and Reserve Bank of Australia (RBA) are finished on additional rate hikes unless the data forces them otherwise, yields swayed lower later in the month. For most of August the 10-year Australian Government Bond yield was above 4.00%, but towards the end trended lower.

Although further rate hikes aren’t expected, there is the view interest rates will remain ‘higher for longer’, with rate cuts still some time off. Ahead of any potential rate cuts, there’s been an opportunity for investors to add higher margin shorter-dated floating rate notes (FRN) and also longer-dated fixed coupon bonds, which provide a steady cash flow. 

No changes were made to the Sample Retail Portfolio for the month, although with the move in yields, the portfolio now yields 6.33%* to the assumed maturity date. To further broaden the retail menu, the below bonds were made available, noting this is the first time an ANZ-issued bond has been made available to retail investors.

  • ANZ-5.906%-12Aug27c Tier 2 subordinated notes
  • ANZ-BBSW+2.70%-12Aug27c Tier 2 subordinated notes 

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 6.33%* to the assumed maturity dates and is an approximate $203k spend.

As we mentioned, no changes were made to the Retail Sample Portfolio for the month, with it being a case of ‘set-and-forget’. We’re happy with the composition although will look to exit our Qantas holding when the opportunity to move into a suitable alternative presents. The company had a strong FY23 result, although is likely not sustainable with the upcoming challenges it faces. This could potentially see some impact to the capital price, and one we’d be keen to take a capital gain and reinvest at some stage.

We added the ANZ 2027c Tier 2 subordinated notes to the retail menu, another higher coupon Tier 2 note issued late last year when rates were higher. They provide a steady income with the fixed coupon at 5.906% and the current coupon on the FRN at 6.868% for the period. 

The Sample Retail Portfolio, along with the full list of retail available bonds (and Factsheets 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, based on swaps rates at the time of writing.