Using benchmark returns as a reference point, it is clearly evident that absolute returns for the Australian fixed interest market have broadly been low over the past year. This is in contrast to the past couple of years, which witnessed relatively strong gains as rates, credit spreads and overall market volatility generally compressed. Despite the RBA delivering four rate cuts since September 2012, the Australian fixed interest market continued to be impacted by offshore events. Global fixed interest markets reacted to actual and potential policy decisions of central banks around the globe. As expected, uncertainty around US monetary policy continued to be the primary focus of the market. These events resulted in increased volatility in global and domestic fixed interest markets and a general sell-off in the long end of the Australian curve. Despite the increased volatility and low returns broadly on offer from the Australian fixed interest market, a large number of active managers continued to outperform their respective benchmarks. This was particularly noticeable in those managers with heavier exposure to spread sectors – for example, corporate credit, residential mortgage-backed securities.
Winner: AMP Capital
Zenith says: Zenith considers AMP Capital’s domestic fixed interest team a standout feature of the capability, based on its depth and collective experience. Configured across three core responsibility lines including credit markets, macro markets and dealing, it consists of 24 investment professionals. The investment process is well structured, effectively drawing upon the considerable resources of AMP Capital. It employs top-down macroeconomic analysis produced by the macro markets team; bottom-up fundamental research by the credit markets team; and first-rate execution by the dedicated dealing team to identify outperformance opportunities from multiple sources. The process is supported by an established and multi-faceted risk framework that comprises industry-leading risk systems, independent risk and compliance teams, and broader portfolio constraints. Zenith’s assessment of these key areas of strength has been facilitated by AMP Capital’s high transparency and openness.
Interview:
Fixed interest markets have changed significantly in the last two years, requiring fund managers to be more flexible and tactical, according to AMP Capital’s head of fixed income, Mark Beardow.
“In 2011 it was all about the sovereign debt crisis in Europe and that theme flowed into 2012, but 2013 has presented much different challenges,” he says.
“This year has been a year of transition for Australia, which is shifting from investment and infrastructure-driven growth to domestic consumption and service-driven growth. This year has been about the misfiring of the Australian economy. It has been about interest-rate positioning and trying to identify the catalysts for when bond yields will rise again.”
Beardow adds that the length of market events is becoming shorter and shorter, making it essential for managers to act faster in order to add value.
“The European debt crisis lasted a year, but the recent volatility caused by speculation around the Fed tapering stimulus and the effect of carry trades on Asian markets lasted a few weeks,” he says.
AMP Capital has two core Australian fixed income strategies, both of which have performed well in the past 12 months.
The AMP Australian Bond Fund invests primarily in Australian government bonds and credit securities across a range of sectors, industries and issuers with some exposure to global fixed income.
The AMP Corporate Bond Fund aims to provide investors with a regular monthly income by actively investing in investment-grade-rated corporate bonds in the Australian market. The fund typically holds more than 100 securities across industries such as financials, utilities and telecommunications, and may have exposure to global credit.
– Leng Yeow
Finalists:
– PIMCO
• Domestic business leverages off extensive global capabilities and resources
• Relatively small but high-calibre domestic investment team.
• Systematic investment process that ensures consistency across mandates while
affording sufficient latitude to portfolio managers to influence portfolios.
– Tyndall Investment Management
• Strong and stable senior investment team that has continued to grow incrementally.
• Established investment process that has remained largely consistent over time but
evolved where necessitated by markets.
• Genuine conservative fixed interest investment manager that has delivered
consistent returns over time.
