Perpetual Active Fixed Interest Fund A (PER8045AU) Report & Performance

The Fund’s robust running yield contributed to outperformance during the month. The Fund’s allocation to non-financial corporates, domestic banks and RMBS were the strongest contributors to relative Income return. The portfolio running yield at month end was 3.8% with the spread measured at 1.1%

Duration positioning detracted marginally from outperformance during the month. Short term yields rallied following the RBA’s decision to keep rates on hold while long term yields sold off marginally. The Fund’s underweight exposure to the belly of the curve was detracted from outperformance as 1-5-year yields rallied. While headline inflation has moderated, supply side disruption and tight labour conditions provide a challenging path for the RBA The Fund remains very marginally short of benchmark duration.

Credit spread tightening was the most substantial contributor to outperformance during the month more than offsetting the impact of the steepening yield curve The Fund’s overweight exposure to credit was well rewarded during the month as domestic spreads rallied, supported by subdued primary market issuance and robust secondary demand. Exposure to domestic banks-most notably longer dated subordinated positions-contributed strongly to outperformance. Elsewhere, Non-financial corporate, utilities and real estate sectors were constructive

Sector and risk allocations were broadly maintained during the month. The Manager elected to increase exposure to government bonds marginally Exposure to issuers in the insurance and energy sectors were selectively trimmed. While the primary market was quiet, the fund did take part in a new CMBS deal from Think Tank which priced during July

While the outlook for credit has improved, the Manager remains conscious of the challenging macro environment and the risks associated with tightening financial conditions. The Fund is defensively positioned and the manager remains focused on identifying relative value opportunities presented as the outlook contine Windows improve.

The Fund’s robust running yield contributed to outperformance during the month. The Fund’s allocation to nonfinancial corporates, domestic banks and RIMS were the strongest contributors to relative income return. The portfolio running yield at month end was 3.9% with the spread measured at 1.2%.

Duration positioning was the most substantial contributor to relative return over the month. Domestic yields rose sharply as investors priced in further RBA tate increases, while the curve flattened further, inverting for the first time since the GFC. The selloff in bonds led to a negative absolute performance for the month however the Fund’s marginally short of benchmark duration mitigated the impact, contributing to outperformance. Curve positioning contributed to relative return as the Fund benefitted from its overweight exposure to the long end of the curve which was resilient relative to the belly.

Credit spread dynamics were mixed for performance. Domestic credit spreads narrowed slightly on aggregate while remaining in range of recent levels. Security selection was positive for outperformance with a number of off-benchmark and overweight positions across utilities and infrastructure performing well. As a result of its elevated exposure to credit, the Fund benefitted marginally from tightening swap spreads as rising government bond yields outpaced swap rates over the month.

Sector and risk allocations were actively adjusted during the month. The Manger elected to reduce exposure to government bonds throughout the month, adding to semi-government exposures in secondary. The Manager elected to invest in the record-breaking Westpac subordinated deal alongside new issues in the insurance and utilities sectors.

In line with the challenging outlook for credit. the Manager remains cognisant of risks and selective in purchase made. While the Fund has selectively added risk over the June quarter, the Fund remains defensively positioned while retaining the capacity to take advantage of relative value opportunities.

The Perpetual Active Fixed Interest Fund in the month of May delivered a return of 40%. outperforming its benchmark by 02%.

The Fund’s robust running yield contributed to outperformance during the month. The Fund’s allocation to nonfinancial corporates. domestic banks and RMBS were the strongest contributors to relative income return. The portfolio running yield at month end was 3.6% with the spread measured at 1.1%

Duration positioning was the key contributor to outperformance during the month. Domestic yield moved higher over the month following the RBA’s decision to increase rates al their May meeting. The inversion of the short end of the curve deepened as 1.3 year yields sold off sharply. While rising yields impacted absolute return. the Fund’s short of benchmark duration positioning contributed to outperformance. Curve positioning was also construdive as the Fund benefitted from undenveight exposure to the very front of the yield cave.

Credit spread dynamics detracted from return. In a month of relatively benign spread movements. it is worth noting that the impact of scattered spread widening was more than offset by the contribution of both the Fund’s running yield and duration positioning. The Fund’s overweight exposut to non-financial corporates and Real Estate Investment Trusts detracted slighllyas these sectors underperformed. As a result of its elevated exposure to credit. the Fund benefitted marginally from tightening swap spreads as rising yields outpaced swap rates over the month.

The Manager was active in primary and secondary markets during the month and the Fund’s credit risk was selectively increasedas the outlook improved slightly. The Fund’s allocation to government bonds was reduced and the Manager elected to take part in a number of new corporate deals The Fund took part in new fixed r ale deals which included government adjacent issuer Australia Post. OIC shopping centre fund and energy network Ausnet Servtes ElseMiere. the Fund added exposure to domestic and offshore banks via new deals from ANZ. UBS and Credit Agricole.

The Fund remains defensively positioned while retaining the opacity to take advantage of relative value opportunities as the outlook improves

The Fund’s robust running yield continues to contribute to outperformance. Allocation to non-financial corporates, domestic banks and securitised sectors were the strongest contributors to relative income return during the month. The portfolio running yield at month end was 3.6% with the spread measured at 1.1%.

Interest rate dynamics were the key determinant of absolute return over the month. Bond yields sold off as investors priced an extended monetary policy tightening cycle and higher terminal rates. The Fund benefitted from its slightly short duration position – relative to benchmark – as yields rose. Curve positioning was constructive as the Fund’s underweight exposure to the very short end of the yield curve performed well as the curve flattened and inversion of 1-and-3 year yields deepened significantly. The Fund’s duration was selectively lengthened during January, ending month in line with the benchmark.

The Fund’s overweight allocation to Credit contributed to outperformance over the month as the credit spreads showed resilience in the face of rising discount rates. Domestic credit spreads tightened while remaining in range of recent levels and swap-to-bonds spreads also narrowed. The Fund’s allocation to non-financial corporates, domestic banks and Real Estate Investment Trusts were the key contributors to credit spread return. As well as benefitting from the broader move tighter in spreads, security selection was also rewarded across non-financial corporates and property sectors.

The Manager was active in primary and secondary markets during the month, adding to domestic and offshore bank exposures while selectively trimming allocation to non-financial corporates. The Manager rotated exposures within the semi-government sector, selling a number of shorter dated issues and adding longer dated WA and SA state government bonds. The Fund remains defensively positioned while retaining the capacity to add risk should the outlook for credit continues to improve.

The Fund’s robust running yield continues to contribute to relative return. The Fund’s allocation to non-financial corporates, domestic banks and securitised sectors were the strongest contributors to relative income return during the month. The portfolio running yield at month end was 4.1% with the spread measured at 1.6%.

Rising bond yields was the key determinant of the Fund’s negative absolute return during the month. Bond yields rose sharply over the final weeks of the year giving back a substantial portion of their gains since October. The Fund began the month marginally short of benchmark duration which contributed to outperformance as yields sold off. Over the course of the month, the Manager lengthened the fund’s duration before ending the year in line with the benchmark.

The contribution of credit spread movements to outperformance was negligible during December. Credit spreads traded in a tight range, narrowing slightly over the course of the month. The Fund’s overweight allocation to domestic bank paper was rewarded. As the credit outlook improves, the Manager is comfortable with the current credit exposure of the fund and its capacity to take advantage of upcoming opportunities.

Over the course of the month, the Fund benefitted from narrowing swap spreads. Swap spreads measure the difference between the government bond yield and the swap rate and is a component of return for fixed rate credit instruments. The Fund has elevated exposure to movements in swap spreads as a result of the overweight allocation to credit. Swap rates rose less than corresponding government bond yields during December, positively contributing to relative return.

Sector and risk allocations were broadly maintained during the month. Despite recent improvements in the credit outlook the manager remains cognisant of risks and selective in purchases made. Fund remains defensively positioned while retaining the capacity to add risk as the outlook for credit continues to improve.

The Fund’s robust running yield continues to be a key contributor to relative return. The Fund’s allocation to non-financial corporates, domestic banks and securitised sectors were the strongest contributors to relative income return during the month. The portfolio running yield at month end was 3.5% with the spread measured at 1.3%.

Credit spread dynamics were mixed for performance during the month. Financials outperformed, led by major bank spreads while non-financial corpore sectors corporate sectors saw widening. The Fund’s overweight allocation to domestic banks performed well while allocation to property and REITs detracted. The Fund’s small-long position in the Euro XOVER CDS index (which tracks European non-investment grade corporate issuers) contributed to relative performance as Euro denominated spreads rallied strongly during the month. As the credit outlook improves, the Manager is comfortable with the current credit exposure of the fund and its capacity to take advantage of upcoming opportunities.

Interest rate dynamics were positive for relative performance. Yields rallied over the month as the market priced in a slower rate of monetary tightening and a lower terminal cash rate. Curve positioning was constructive, the fund’s overweight exposure to the belly (3-7 years) of the curve performed well as the yield curve flattened. The Fund remains slightly short of benchmark duration and underweight the short end of the curve.

A considerable contributor to relative return during the month was the Fund’s exposure to swap spreads which retraced after widening sharply in October. The Fund has elevated exposure to movements in swap spreads as a result of the overweight allocation to credit.

Sector allocations were broadly maintained during the month. The Manager elected to liquidate a small number of short dated corporate bonds taking advantage of relatively stronger demand at the short end, reinvesting in longer dated government and semi-government issues. The Fund remains defensively positioned while retaining the capacity to add risk as the outlook for credit continues to improve.