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 August 2021
The High Livez fund achieved a strong distribution return for the month of August of 2.60% per annum.
This was 2.57% above the Overnight Cash Rate of 0.03%, and well above the Official Cash Rate, which was reduced to a target of 0.10% in early November 2020.
Our Investment Committee is currently considering and searching for good-quality assets that may offer some improved yield, with the objective of maintaining solid monthly distribution rates. This is the key objective of our fund.
The Total Return for the Fund over the past 10 years was 5.45% per annum, consisting of 4.90% annualised distribution return and 0.55% annualised capital growth.
It is important to note that our fund’s RMBS investments are all floating-rate assets which receive a fixed margin over the one-month Bank Bill Swap Rate. This means that in the event of inflation and rising interest rates, the fund’s distribution returns will also rise. The fund’s assets may therefore be viewed as a hedge against inflation. This is particularly relevant given the increasing prospect of inflation being discussed in the media in recent times.
Our High Livez unit price has been rising strongly over the past year. The unit price increased from $1.0384 in July 2020 to $1.0622 this month, relatively unchanged from $1.0645 a month earlier. The unit price bottomed in March 2020 at the height of COVID-19 fears at $1.0342.
The increasing unit price reflects the ongoing ‘chase for yield’ as the underlying RMBS investments of our fund are increasingly bid at higher prices. This results in a combination of a rising unit price and a falling yield rate. As with the vast majority of assets in the current economic cycle, prices are rising and yields are falling. This does mean that our yield is also reducing from historic levels. Demand from institutional investors for the RMBS that our fund invests in remains strong which continues to underpin the strength of our unit price.
Underlying mortgage bond (RMBS) performance has been excellent, buoyed by a strengthening economic recovery, and rising house prices.
Australian Economic Update
Australian economic indicators released in August and early September were of mixed strength. Q2 GDP was stronger than expected, up 0.7% quarter-on-quarter and 9.6% year-on-year but Q3 will be weak because of COVID-19 shutdowns. The dent to economic activity showed in July retail sales, -2.7% month-on-month, and has started to limit housing finance, which fell 0.4% month-on-month in July after falling 2.5% in June. The July labour force report, however, was surprisingly strong showing employment up 2,200 in the month and the unemployment rate falling to a twelve-year low of 4.6% from 4.9% in June. The unemployment rate will rise in the August report reflecting COVID-19 shutdowns in Melbourne and Sydney. The RBA board met early in the month and left interest rate settings unchanged at 0.10%. It announced a slight reduction in its regular bond buying program to start in September although this plan could change because of COVID-19 developments. The RBA reaffirmed that it does not expect to lift interest rates until 2024 at earliest.
Australian Credit Markets
The fixed income credit markets remained well bid through the month of August. The Australian iTraxx index was 5 basis points tighter at 57 basis points while cash products also performed well. The Federal Government’s Term Funding Facility (TFF) has meant that Australian banks have not had to tap the capital markets for senior debt funding since the start of 2020. At that time, the banks were issuing senior debt around 77 basis points over swaps. In August, NAB came in with the first senior debt deal since the TFF was closed at the end of June. The deal was a $2.75bln transaction that was well received by the market and priced at 41 basis points. This is a level not seen since before the Global Financial Crisis.
Historical performance assumptions
*Total return for the 10 years to 31 August 2021 and 5.58% p.a. since inception on 29 March 2011. The total return is the trust’s consolidated performance over the period referenced. Past performance is not indicative of future performance and should not be the only factor considered when selecting an investment. Performance is calculated on an initial investment for $10,000 with distributions reinvested. Ongoing fees and expenses have been applied however individual taxes are excluded. This information is general information only and does not take into account your individual objectives, financial situation or needs. You should assess whether the information is appropriate for you and consider obtaining financial advice prior to making an investment decision.