Performance Summary
Firstmac’s expertise in Residential Mortgage-Backed Securities has seen over $32 billion in RMBS issued since 2003. High Livez gives everyday investors access to this market, which is usually restricted to institutional investors.
Fund performance to 31 May 2022
The RBA lifted the cash rate by a more-than-expected 0.50% to 0.85% on June 7, following an increase of 0.25% in early May. This has resulted in a corresponding increase in the one-month bank-bill rate off which our fund investments reset.
The investments of the fund are all floating-rate notes which reset monthly, meaning a rising cash rate will result in higher coupon receipts, increasing the distribution return of the fund. The market expects further increases by the RBA over the next 6 months, with many economists forecasting a cash rate of 2.00% by Christmas.
As at May 31, bank bill rates had already increased following the May cash rate change. This means that increased collections, and therefore distributions, are anticipated to occur from the June month end (July distribution). The RBA cash rate is anticipated to keep rising over the months ahead.
The RBA Cash rate and the one-month Bank Bill Swap Rate are 99.4% correlated over a ten-year period.
The distribution return for the month of May was 2.41% per annum, while the Unit Price was relatively unchanged, increasing from $1.0440 to $1.0448.
The High Livez Investment Committee has recently identified and invested in good quality assets from HSBC Bank and AMP Bank that may offer some improved yield, with the objective of maintaining solid monthly distribution rates. This is the key objective of our fund. The Investment Committee anticipates some positive market opportunities over the next few months.
The Total Return for the past 10 years was 4.85% per annum consisting of 4.46% annualised distribution return and 0.39% annualised capital growth. Over the past year three years, the Total Return was 2.89% per year, and over the past five years was 3.48% per annum.
Underlying mortgage bond (RMBS) performance has been excellent, buoyed by a strengthening economic recovery.
High Livez Fund investments are floating rate, which receive a fixed margin above a base rate. This means that in the event of inflation and rising interest rates, the Fund’s distribution returns are likely to rise, whilst if interest rates fall, distributions are also likely to fall. The correlation between the Fund’s distribution rate and the RBA’s official cash rate is illustrated in the above graph. The investments held by the High Livez Fund are loans, which means that in the event a borrower defaults, the High Livez Fund (and accordingly its investors) will not benefit from returns from that loan. All loans are subject to borrower default risk, and in a higher rate environment, this risk may be higher. An investment in the High Livez Fund is at risk, and is a different asset class to cash which is displayed by the RBA Cash Rate. Accordingly, an investment in the High Livez Fund is of a higher risk than an investment in cash. By displaying this graph, it is intended to show how the High Livez Fund’s returns may be affected by changes in the RBA Cash Rate, and it is not intended to compare an investment in the High Livez Fund to a cash holding.
Australian Economic Update
Australian economic indicators released in May and early June show continuing strong economic growth but with some softening signs in housing. Q1 GDP rose 0.8% quarter-on-quarter, 3.3% year-on-year, primed by strong household spending. April economic readings point to continuing strong growth with retail sales up 0.9% month-on-month, employment up 4,000 and the unemployment rate at 3.9%, the lowest in 48 years. Housing indicators in April presented an exception to the strong growth theme with home building approvals down 2.4% month-on-month and the value of new home loans down 7.3% month-on-month. The RBA at its early May policy meeting announced the first official interest rate rise (+25bps to 0.35%) in eleven years. The rise was in response to inflation running higher than previously forecast by the RBA and the RBA now expects to continue lifting the cash rate gradually to a more neutral setting over time around 2.50%.
Australian Credit Markets
Volatility remained elevated in May with geopolitical risk and lockdowns in China adding to existing supply chain pressures and rising inflation concerns. With the RBA increasing the cash rate by 0.25% in May, the Australian bond yields rose across the curve, with the 3-year and 10-year government bonds yields increasing by 13.5 basis points and 23 basis points to close higher at 2.84% and 3.35% respectively. Bank spreads closed 9 basis points wider as the major banks were active in the primary markets, resetting the historical prices for these securities. The Australian iTraxx widened intra-month, however, ended the month flat at 95 basis points. A total of $9.75 billion was issued by ANZ, NAB and Westpac, with only the ANZ transaction closing wider as new transactions came to market.
Historical performance assumptions
*Total Return for the 10 years to 31 May 2022 and 5.20% since inception on 29 March 2022. The total return is the Fund’s consolidated performance over the period referenced. Performance is calculated on an initial investment of $10,000 with distributions reinvested. Ongoing fees and expenses have been applied however individual taxes are excluded. This website is prepared and issued by Firstmac Limited ACN 094 145 963 (Firstmac) the holder of Australian financial services licence (AFSL) number 290600 in respect of Firstmac High Livez ARSN 147 322 923 (Fund). Perpetual Trust Services Limited ACN 000 142 049, the holder of AFSL number 236648 is the responsible entity (RE) and the issuer of the units in the Fund (Units). A target market determination for the Fund is available at www.firstmac.com.au or by contacting Firstmac on 13 12 20. This website has been prepared without taking account of your objectives, financial situation or needs. Before investing in the Fund, you should consider whether an investment in the Fund is appropriate having regards to your objectives, financial situation and needs and obtain appropriate professional advice. Prior to making a decision about whether to acquire, hold or dispose of Units you should consider the product disclosure statement (PDS) for the Fund available at www.firstmac.com.au. Past performance is not a reliable indicator of future performance and may not be repeated. Restrictions may apply to the amount and timing of withdrawal requests – refer to the PDS for full details.
High Livez downloads
