Investment Strategies

Income & Fixed Interest

The Income & Fixed Interest boutique runs a range of strategies that cover Australian and international bonds, unconstrained absolute return, as well as income-orientated solutions and cash funds.

Our investment style is true-to-label defensive fixed interest, with our bond funds designed to perform well in stressed market environments, which are typically associated with equities being sold off. These strategies are run by an experienced team that combines in-depth macroeconomic and quantitative research as part of a rigorous investment process.

FUND NAME Benchmark 1 year % 3 years % pa 5 years % pa
BT Pure Alpha Fixed Income Fund A -1.68 3.20 N/A
BT Wholesale Fixed Interest Fund B 4.23 6.52 6.17
BT Government Bond Fund C 5.76 6.66 5.97
BT Wholesale Enhanced Credit Fund D 5.30 6.13 6.61
BT Wholesale Enhanced Cash Fund E 2.78 3.11 3.98
BT Wholesale Managed Cash Fund E 2.40 2.62 3.13
BT Wholesale Monthly Income Plus Fund F 5.48 5.80 6.48
BENCHMARK
A: Bloomberg AusBond Bank Bill Index 2.19 2.44 N/A
B: Bloomberg AusBond Composite 0+ Yr Index 5.69 6.21 5.97
C: Bloomberg AusBond Govt 0+ Yr Index (since 5/9/09) 5.95 6.42 5.92
D: Bloomberg AusBond Non Govt 0+ Yr Index 4.97 5.65 6.03
E: Bloomberg AusBond Bank Bill Index 2.19 2.44 2.94
F: RBA Cash Rate 1.88 2.22 2.75

One of the most significant differentiators of our team’s flagship strategies is their defensive positioning. This means they are poised to perform well during periods of market stress and high volatility. In this way they are managed to act as an insurance component of a broader investment portfolio that will typically assist in offsetting potential losses from an equities allocation. We believe this building block approach to fixed interest strongly differentiates us in the Australian market and is more in tune with the structure of the asset class.

Our strategies’ defensive positioning and differentiated investment style is reflected in our performance history. For example, the BT Wholesale Fixed Interest Fund has one of the highest negative correlations to both high yield bonds and Australian equities, relative to peers. Moreover, it has realised a positive return during most periods when the equity market has declined. Additionally, the highly differentiated process of the BT Pure Alpha Fixed Interest Fund is reflected in its low correlation to other strategies in the unconstrained investment universe. This is partly thanks to the range of investment levers utilised including foreign exchange, credit and bonds.

The boutique’s distinctive style can be attributed to the views of the team and a desire to deliver a true-to-label fixed interest experience. This is founded on our solid fundamental research approach.

The key highlight for 2016 was the strength of client endorsement across our whole boutique with our key funds hitting milestone FUM targets from a range of clients including advisers and institutional clients.

Pleasingly our income solution, the BT Wholesale Monthly Income Plus Fund surpassed $300 million in FUM and we have now signed an agreement for a mandate that will double this amount, boding well for continued future growth in this strategy.

Our research house and consultant endorsements continued during the 2016 Financial Year, with our flagship BT Wholesale Fixed Interest Fund being upgraded to highly recommended by research house Lonsec and receiving another nomination for Fund Manager of the Year for Fixed Income, both strong endorsements of the process we have built over the last six years.

Our BT Pure Alpha Fixed Income strategy is also well regarded by a number of the institutional asset consultants and now sits on a number of ‘Buy’ lists, which again highlights the strength in our team and process and our ability to compete against the best fixed income strategies globally.

Unfortunately, it has been a mixed year in terms of performance, with our Absolute Return strategy and our Wholesale Fixed Interest strategies under our return targets whilst our income, credit and cash strategies were all above expectations.

The last 12 months have seen us well positioned, with a strong defensive bias across a number of our funds, given the strength of our conviction on the economic and market outlook that has determined our key positions. We believe to be true to label we need to be active when we have high conviction especially when we are concerned about market volatility and the potential for equity drawdowns.

High conviction medium term and long term macro themes form the basis of the qualitative part of our investment process. We implement the themes that arise from both the quantitative and qualitative parts of our process, in such a way that ensures the defensiveness of the alpha generation of the portfolio in weak risk markets. Our clients understand this is how we manage money and find it otherwise difficult to invest in a long volatility biased strategy that can provide a negative correlation when it is needed in a portfolio. We believe our role is to generate returns when the market affords opportunities to do so, while maintaining a long volatility bias to help protect the broader portfolio in times of market stress. This is the reason why clients include our funds in their portfolios and why we continue to be shortlisted for new inclusions.

We expect that 2017 will be an eventful year in the markets, as volatility is now returning after a prolonged period of being suppressed. We look forward to this as our investment process works best in volatile markets.

We believe the market will continue to shift towards more income focused products and we are very well represented in this space, with a number of funds that have the potential to raise significant assets. As well as helping in the accumulation phase we also look forward to partnering with a number of our clients on delivering post-retirement solutions to their members.

As always we continue to invest in the boutique and are pleased to have a new portfolio specialist who joined us in October to help drive communication with our key clients, work on providing relevant and interesting education pieces to the market and build new relationships.

We expect 2017 will be another volatile year and, as always, we are positioned for this increased volatility.

We are now a team of 11, having grown from five people in 2010.

We greatly look forward to the coming year and helping our clients to achieve their financial goals.