Wednesday 11 October 2023 by Jessica Rusit Jacaranda flowers Trade opportunities

Retail Sample Portfolio Update – October 2023

‘Higher for longer’ messaging from central banks has seen yields move higher over the month, with the potential for one last rate hike from the US Federal Reserve and the Reserve Bank of Australia (RBA) for the year. A small change was made to the Sample Retail Portfolio, which now yields 6.68%*. Here we discuss the portfolio for the month of October. 

With a growing chorus of central banks indicating interest rates will be elevated for some time, investors have started paying attention, sending yields higher over the month. The recent release of strong US jobs data has further fuelled the move higher in US Treasury and Australian government bond yields.

This generally provides an opportunity to achieve attractive entry points and better returns from longer-dated fixed rate bonds.

Locally, the RBA kept rates on hold for the fourth consecutive month when it met earlier this month, although November could be a live meeting depending on the quarterly inflation data release.

We added a new bond to the retail menu, which was also included in the Sample Retail Portfolio, boosting the portfolio return coupled with the move higher in yields to 6.68%*, indicatively. As mentioned, the below bond was made available to retail investors. 

  • Judo-6.40%-26Sep25 Senior 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 6.68%* to the assumed maturity dates and is an approximate $210k spend.

We had flagged last month our intention to exit the Qantas 2030 holding when a suitable alternative presented itself, and that was the case this month with the Judo 2025 bond being added to the retail product offering. While we have no credit concerns with Qantas, the company faces further challenges and after posting such a strong FY23 performance, it’s a weaker outlook from here.

Switching from our Qantas 2030 holding into the Judo 2025 bond has allowed us to maintain a senior unsecured position in the capital structure and in an investment grade exposure while improving the portfolio yield and shortening its tenor (moving from 2030 to 2025). The Judo bond pays a fixed rate coupon of 6.40%, which competes nicely with the Qantas coupon of 5.25% and improves the portfolio running yield as a result to 5.94%. 

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.