Firstmac’s expertise in Residential Mortgage Backed Securities has seen over $14 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 28 February 2017
In February our High Livez fund maintained its record of delivering consistent income for investors, with an annualised distribution return of 4.18%.
The result brings the Total Return of the fund for the past 5 years to 6.20% on an annualised basis.
As expected by the Investment Committee, the fund’s credit performance was strong. Market conditions and demand for Residential Mortgage Backed Securities (RMBS) have been very buoyant in recent weeks and we anticipate this rising demand may well translate into increasing asset values going forward.
As flagged in our previous update, the Committee made a number of new investments during late February and early March.
In the course of these investments, we received strong evidence of buoyant market demand when our bids in RMBS auctions were heavily scaled back by the issuers.
For example, the fund received only 25% of the RMBS allocation that we sought in one particularly popular regional bank RMBS auction.
Although we anticipate that the strong market will soon flow through into rising asset values, the fund’s unit price was relatively stable during the month, reducing slightly from 1.0481 to 1.0474.
The Investment Committee continues to seek investment opportunities with sound credit quality that will satisfy the yield objectives of our fund.
Australian Credit Markets
During the month credit markets have been stronger, driven tighter by a shortage of new transactions, geopolitical stability and a subdued government bond market.
The Australian Itraxx Index, which measures the credit risk of 25 investment-grade names was trading at 94 basis points at the start of February and hit a low of 83 basis points in early March. This 11 basis points tightening translates into a gain in value of about 0.58% (or around 7% annualised).
With the current benign market conditions, CBA and NAB took the opportunity to issue ASX-listed interest rate securities. Demand exceeded supply for both securities, and they are expected to trade stronger once they list on the ASX.
Australian Economic Update
The Australian economy has rebounded strongly in Q4 2016, with real GDP growing by 1.1% quarter-on-quarter and 2.4% year-on-year after the weak results reported in Q3 2016.
Improvements in Q4 GDP were largely a result of the strengthening in housing activity, government spending, business investment and net exports.
The momentum in economic growth is likely to continue in the near future on the back of improvements in international trade, better business conditions and profitability within the economy in Q4.
However, increases in household debt and weak wages growth, have led to concerns about future constraints on economic growth. The RBA is likely to keep the cash rate on hold at 1.50% for an extended period in an effort to avoid adding to the growth of household debt and asset inflation within the housing market.
Historical performance assumptions
*Total return for the 5 years to 28 February 2017 and 6.67% 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 expended 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.