The Janus Henderson Diversified Credit Fund (Fund) returned 0.19% (net) and 0.25% (gross). The Fund underperformed the Bloomberg AusBond Bank Bill Index (Benchmark) by -0.15% (net) in September, which returned 0.34% over the month. The Fund continues its outperformance, beating the Benchmark over the longer term including by 3.76% (net) over the year, and 2.34% (net) per annum over the past 5 years.
Australian credit performed positively in September, buoyed by the embedded elevated yields while spreads were broadly unchanged. We remain cautious and selective on credit, buying in the industries we like such as inflation protected industries, senior bank paper, and high quality well collateralised Asset Backed Security (ABS) structures.
Floating rate credit subsectors outperformed for the month with domestic listed hybrids and global loans the top subsectors, while emerging market debt and high yield underperformed due to higher US treasury yields and spreads beginning to widen. Australian Tier 2 continued to outperform delivering returns above bank bills mainly though income advantage, while the hybrid market rebounded from a negative previous month as well as some support driven by APRA announcing a consultation into the local use of additional Tier 1 capital instruments. Now that Tier 2 valuations have moved from attractive to fair, we have actively increased capacity for future issuance that may come with better concessions in tougher market conditions. Relative value opportunities continue to present with some of the domestic primary corporate transactions proving very popular and outperforming the broader market, with spreads rallying 10-15bps despite weaker broader spread conditions.
Across the quarter it was a strong period for excess returns, particularly from factors such as bond swap spread compression (12bps tighter), and credit spreads contributing positively from income advantage and some further spread compression which slowed in September. Financial credit spreads were broadly unchanged as the market was met with strong supply, while corporate spreads outperformed with BBBs compressing 11bps over the quarter as investors favoured adding defensive sectors like utilities and transport infrastructure at high outright yields. This was evidenced where primary market transactions were well bid in general and new deals the Fund participated in have rallied in spread, in particular Chorus, Westconnex, and Suncorp Tier 2 were hotly contested and oversubscribed, showing the environment is still one that favours active security selection.
What is Janus Henderson Diversified Credit Janus Henderson Diversified Credit is an Managed Funds investment product that is benchmarked against Global Aggregate Hdg Index and sits inside the Fixed Income - Diversified Credit Index. Think of a benchmark as a standard where investment performance can be measured. Typically, market indices like the ASX200 and market-segment stock indexes are used for this purpose. The Janus Henderson Diversified Credit has Assets Under Management of 705.18 M with a management fee of 0.55%, a performance fee of 0.00% and a buy/sell spread fee of 0.14%.
How has the investment product performed recently?
The recent investment performance of the investment product shows that the Janus Henderson Diversified Credit has returned 0.56% in the last month. The previous three years have returned 3.88% annualised and 2.75% each year since inception, which is when the Janus Henderson Diversified Credit first started.
How is risk measured in this investment product?
There are many ways that the risk of an investment product can be measured, and each measurement provides a different insight into the risk present. They can be used on their own or together to perform a risk assessment before investing, but when comparing investments, it is common to compare like for like risk measurements to determine which investment holds the most risk. Since Janus Henderson Diversified Credit first started, the Sharpe ratio is NA with an annualised volatility of 2.75%. The maximum drawdown of the investment product in the last 12 months is -0.16% and -6.2% since inception. The maximum drawdown is defined as the high-to-low decline of an investment during a particular time period.
What is the relative performance of the investment product?
Relative performance is what an asset achieves over a period of time compared to similar investments or its peers. Relative return is a measure of the asset's performance compared to the return to the other investment. The Janus Henderson Diversified Credit has a 12-month excess return when compared to the Fixed Income - Diversified Credit Index of -0.2% and 0.79% since inception.
Does the investment product produce Alpha over its Peers?
Alpha is an investing term used to measure an investment's outperformance relative to a market benchmark or peer investment. Alpha describes the excess return generated when compared to peer investment. Janus Henderson Diversified Credit has produced Alpha over the Fixed Income - Diversified Credit Index of NA% in the last 12 months and NA% since inception.
What are similar investment products?
For a full list of investment products in the Fixed Income - Diversified Credit Index category, you can click here for the Peer Investment Report.
What level of diversification will Janus Henderson Diversified Credit provide?
Janus Henderson Diversified Credit has a correlation coefficient of 0.84 and a beta of 0.58 when compared to the Fixed Income - Diversified Credit Index. Correlation measures how similarly two investments move in relation to one another. This establishes a 'correlation coefficient', which has a value between -1.0 and +1.0. A 100% correlation between two investments means that the correlation coefficient is +1. Beta in investments measures how much the price moves relative to the broader market over a period of time. If the investment moves more than the broader market, it has a beta above 1.0. If it moves less than the broader market, then the beta is less than 1.0. Investments with a high beta tend to carry more risk but have the potential to deliver higher returns.
How do I compare the investment product with its peers?
For a full quantitative report on Janus Henderson Diversified Credit and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Janus Henderson Diversified Credit with the Global Aggregate Hdg Index?
For a full quantitative report on Janus Henderson Diversified Credit compared to the Global Aggregate Hdg Index, you can click here.
Can I sort and compare the Janus Henderson Diversified Credit to do my own analysis?
To sort and compare the Janus Henderson Diversified Credit financial metrics, please refer to the table above.
Has the Janus Henderson Diversified Credit been independently verified by SMSF Mate?
This investment product is in the process of being independently verified by SMSF Mate. Once we have verified the investment product, you will be able to find more information here.
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Performance Commentary - August 31, 2023 The Janus Henderson Diversified Credit Fund (Fund) returned 0.80% (net) and 0.84% (gross). The Fund outperformed the Bloomberg AusBond Bank Bill Index (Benchmark) by 0.43% (net) in August, which returned 0.37% over the month. The Fund continues its outperformance, beating the Benchmark over the longer term including by 3.15% (net) over the year, and 2.39% (net) per annum over the past 5 years.
Credit performed well in August, buoyed by the embedded elevated yields which offset some spread widening. We took profit on some of the credit in the portfolio, whilst maintaining high quality credit positions that we are comfortable with.
Global loans were the top performing credit subsector for the month, while emerging market debt and high yield underperformed due to higher US treasury yields. In Australian Tier 2 continued to outperform delivering returns above bank bills, while listed hybrids had a negative month due to new supply from NAB. We remain uninvested in domestic hybrids, with our favoured overweight Australian Tier 2 allocation having performed well and adding value. Now that Tier 2 valuations have moved from attractive to fair, we have started to take profit to increase active capacity for future issuance that may come with better concessions. Relative value opportunities are still apparent in this environment and we switched some allocations out at 5.9% yield into the new Lloyds Subordinated notes at 7.09%, which yields more than listed hybrids.
Another strong month of returns for investors were driven from healthy yields available on quality credit as well as active credit selections that performed well. Income generation remains strong and local Australian high grade credit continues to add value this year with credit spreads rallying further. Real estate investment trusts (REITs) in particular had a good month as reporting season painted a positive picture in Retail which assisted broader REIT spreads tighter, which have looked cheap on relative value. This was complimented by our overweight interest rate duration position of 1.3 years, which was a positive contributor into the fall in bond yields generating positive capital returns.
It remains a fruitful environment for active security selection. We used the market risk appetite and ongoing rally in major bank Tier 2 spreads to continue some profit taking, reducing exposure as we expect primary supply to pick up now that local reporting season is behind us. We will seek to redeploy liquidity into new primary deals which are coming out at attractive yield levels, which we took advantage of in the Lloyds deal entering at a 7.1% yield.
Fund yield remains around 6.0% with overall cautious risk positions with low levels of sub investment grade exposure and no listed hybrid allocations, with material credit default swap protection positions in place. Despite an ongoing recovery in sub investment grade spreads, we remain patient awaiting better valuation entry points in higher beta or more illiquid segments of the credit market. In the meantime, investors are still rewarded with healthy returns from higher quality parts of the market which offer better risk adjusted prospects.
Performance Commentary - July 31, 2023 The Janus Henderson Diversified Credit Fund (Fund) returned 0.88% (net) and 0.93% (gross). The Fund outperformed the Bloomberg AusBond Bank Bill Index (Benchmark) by 0.51% (net) in July, which returned 0.37% over the month. The Fund continues its outperformance, beating the Benchmark over the longer term including by 3.11% (net) over the year, and 2.35% (net) per annum over the past 5 years.
It was a good month of outperformance from credit, returns benefitting from both additional income and some spread tightening. Overweight credit allocations were a positive contributor as a result.
With markets adjusting expectations for a gentler path for policy tightening and slowing growth, this aided higher beta credit sectors across loans, emerging market debt, high yield and hybrids, with all performing well. We remain very modestly allocated across these sectors as market sentiment remains fickle and the impacts of policy tightening are slowly feeding through, with asymmetric downside in our view. Australian Tier 2 continued to exhibit strong outperformance from spreads and income and has been our preferred substitute for lower quality sectors.
Healthy returns were driven from attractive yields on quality credit as well as active credit selections that continued to perform well during July. This was complimented by some active repositioning in interest rate duration as bond yields rose sharply through June into early July, and we moved to add some duration back into the portfolio to lock in some elevated yield levels into the portfolio. Interest rate duration was lifted to 1.2 years, an increase of 0.9 since the start of June, as yields approached more attractive levels to lock in for investors.
It remains a fruitful environment for active security selection. We used the stronger market risk appetite and sharp rally in Tier 2 spreads to continue some profit taking. We reduced exposure to unlisted hybrids, as well as longer tenor Tier 2 securities. We also added some credit default swap (CDS) protection as entry levels are as cheap as they have been for some time. We will seek to redeploy liquidity into new primary deals as reporting season unfolds in August. We saw some opportunity to allocate to AAA rated credit during the month via primary activity from Suncorp in covered bonds, as well as some well seasoned AAA rated prime residential mortgage-backed securities (RMBS) at a spread of 1.17% above bank bills, which looks attractive on a risk adjusted basis.
Fund yield remains around 6.0% with cautious risk positions. Should bond yields climb further in sympathy to global market pricing, we see value in locking in higher yield levels for income investors via adding duration, which can also serve as a defensive buffer if risk markets wobble.
The Fund’s selective allocations towards high quality investment grade credit have continued to perform well, and despite a strong recovery in sub investment grade returns, we remain patient awaiting better valuation entry points in higher beta or more illiquid segments of the credit market.
Performance Commentary - June 30, 2023 The Janus Henderson Diversified Credit Fund (Fund) returned 0.57% (net) and 0.61% (gross).
The Fund outperformed the Bloomberg AusBond Bank Bill Index (Benchmark) by 0.27% (net) in June, which returned 0.3% on the month. The Fund continues its outperformance, beating the Benchmark over the longer term including by 3.6% (net) over the year, and 2.31% (net) per annum over the past 5 years.
It was a good month of outperformance from credit, returns benefitting from both additional income and some spread tightening. Overweight credit allocations were a positive contributor as a result, and we continued to actively take profit on active positions added during FY23 that have moved from cheap back towards fairer valuations.
In a stronger month for credit loans, emerging market debt, high yield and hybrids all performed well. We remain very modestly allocated across these sectors as conditions remain choppy, with asymmetric downside in our view. Australian Tier 2 also exhibited outperformance from spreads and income and has been our preferred substitute for lower quality sectors.
Portfolio return was primarily driven by income with additional positive contributions from the tightening in local Tier 2 and corporate bond spreads. The Fund was cautiously positioned on interest rate duration across the quarter as sharply rising bond yields saw shorter duration and floating rate securities outperform. We used the market conditions late in the June quarter to build liquidity and begin to add duration back into the portfolio.
We remained highly active on security selection in the AUD investment grade space. We allocated into new primary deals which came with reasonable new issue concessions which included Westpac Tier 2 and QBE subordinated notes with coupon rates between 6.4 – 7.4%, while in lower beta credit also saw value in Bendigo AAA Covered bonds with an initial coupon of 5.4%. In the strong credit environment there were opportunities to maintain our liquidity, so we were also active in taking profit on other bank Tier 2 notes which were trading at tighter spreads than the new issuance, allowing us to pick up yield without adding risk to the portfolio. We also saw some attractive entry levels in credit protection and added some additional CDS protection. Portfolio spread duration was shortened by 0.2 years as a result.
The push higher in yields has seen Fund yield rise to 6.0% even as we have been reducing credit risk positions. As bond yields climb sharply, we start to see value in locking in higher yield levels for income investors via adding duration, which also serves as a defensive buffer if risk markets wobble. The Fund’s selective allocations towards high quality investment grade credit have continued to outperform whilst we remain patient awaiting better valuation entry points in higher beta or more illiquid segments of the credit market.
Performance Commentary - May 31, 2023 The Janus Henderson Diversified Credit Fund (Fund) returned 0.47% (net) and 0.51% (gross). The Fund outperformed the Bloomberg AusBond Bank Bill Index (Benchmark) by 0.18% (net) in May, which returned 0.3% on the month. The Fund continues its outperformance, beating the Benchmark over the longer term including by 1.99% (net) over the year, and 2.68% (net) over a three year rolling period.
Overweight credit allocations were a positive contributor, benefiting during the month mainly from additional income and constructive spread movements.
Higher yielding credit sectors largely were able to benefit from additional income in the more stable credit conditions. European Loans were the top performing sub sector, followed by Australian Tier 2 with floating rate credit classes outperforming in the rising bond yield environment. ASX listed hybrids underperformed due to new supply from CBA who issued new hybrids pushing market spreads higher. We remain patient and cautiously positioned with reduced allocations to sub investment grade, illiquid and heavily structured credit sectors moving into the latter stages of the credit cycle with pockets of repricing continuing through the year.
The Fund delivered solid performance in a tougher market environment. A cautious interest rate duration position immunised the Fund from rising bond yields and floating rate assets benefitted from further increases in RBA cash rates. Allocation across the credit sectors was key with Australian floating rate notes (FRNs) and Tier 2 securities and Loans outperforming bonds, cash and hybrids.
Whilst we expect resolution to the US debt ceiling concerns, there are darker clounds looming ahead as macro conditions and credit fundamentals are anticipated to weaken. We used the market conditions in May to build liquidity and dry powder into the back half of the year. We took profit on bank FRNs and Tier 2 which have performed very well since Q4 2022. We replenished liquidity levels to above 10% awaiting good value primary issuance levels as opportunities to redeploy. Fund spread duration was shortened by 0.4 years as a result.
Yield levels in the Fund remain attractive hovering between 5.5% to 6.0% even as we have been lowering risk positions. Further increases in cash rates in the months ahead further boost income return for floating rate securities. As bond yields climb we start to see value in adding some interest rate duration to lock in higher yield levels for income investors, it also serves as a defensive buffer if risk markets wobble. The Fund’s strong allocations towards high quality investment grade credit, loans and selective Tier 2 securities have continued to outperform. We remain patient and significantly underallocated to ASX-listed hybrids and high yield.
Performance Commentary - April 30, 2023 The Janus Henderson Diversified Credit Fund (Fund) returned 0.60% (net) and 0.66% (gross). The Fund outperformed the Bloomberg AusBond Bank Bill Index (Benchmark) by 0.3% (net) in April, which returned 0.3% on the month. The Fund continues its outperformance, beating the Benchmark over the longer term including by 1.23% (gross) over the year, and 3.77% (gross) over a three year rolling period.
April was a good month for credit, with most of the attribution coming from higher coupon income as credit spreads stabilised. The Fund added additional alpha by taking advantage of opportunities that arose after the Silicon Valley Bank collapse and Credit Suisse merger. Some of the safest segments from a default risk perspective cheapened as the baby was thrown out with the bath water. These rebounded well in April as rationality prevailed. We took the opportunity to take some profit on those trades that had rallied/rolled down. We remain cautious on the corporate debt sector whilst harnessing the income from taking larger positions in the highest quality credit segments. We remain under invested in higher beta securities with powder dry for future acquisition.
Higher yielding credit sectors were beneficiaries in the more stable credit conditions where positive returns were largely supported by the higher level of income. We remain cautiously positioned with reduced allocations to sub investment grade, illiquid and heavily structured credit sectors moving into the latter stages of the credit cycle.
In April the additional income carry profile of the portfolio delivered outperformance from allocations favouring Australian investment grade credit and Tier 2 securities which outperformed bonds and cash. Bank senior and Tier 2 securities have resumed normal trading and end April around levels that existed prior to the March weakness. We observe deterioration in offshore credit conditions and therefore are inclined to begin profit taking on some of the senior and Tier 2 positions accumulated and higher spreads over the past 12 months to replenish liquidity to be in a position to take advantage of widening spreads and new issuance.
During April we took some profit on a swap rate positions implemented during March. In addition, we observe relatively benign conditions in VIX and CDS markets, so during the month we took the opportunity to add 0.3yrs spread duration of credit protection via US IG CDX.
Yield levels in the Fund remain attractive between 5.5% to 6.0%. Further increases in cash rates in the months ahead can boost income returns for floating rate securities. Interest rate duration remained conservatively positioned over the month below 0.2 years. The Fund’s strong allocations towards high quality investment grade credit, loans and selective Tier 2 securities have outperformed. We remain patient and under allocated to ASX-listed hybrids and high yield.
Performance Commentary - March 31, 2023 The Janus Henderson Diversified Credit Fund (Fund) returned -0.48% (net) and -0.43% (gross). The Fund underperformed the Bloomberg AusBond Bank Bill Index (Benchmark) by -0.76% (net) in March, which returned 0.28% on the month.
Credit spreads weakened over the month, which was a detractor to performance. Generous coupon income helped to preserve capital in what was a challenging month for physical credit. Floating rate credit outperformed fixed rate as investors shifted out of fixed rate bonds and into floating rate notes following the rally in bond yields. Fixed rate bank and corporate credit, including Tier 2 debt, underperformed government bond equivalents.
Our minimised allocation to global high yield, and no allocation to Emerging Markets protected the portfolio from weakening credit returns. In addition, having fully divested from domestic listed hybrids was beneficial as they continued their run of underperformance for the calendar year, underperforming versus cash by -1.6% and underperforming higher ranking Tier 2 securities by -2.5% for the quarter.
After a strong start to 2023, part of the credit rally was given back during March as local credit spreads softened in sympathy with offshore credit events. The Fund was shielded from any direct return impacts from Silicon Valley Bank (SVB) and Credit Suisse, but negative contributions from a broader widening in spreads more than offset income generation for the month.
Yield levels in the Fund remain attractive between 5.5% to 6.0%. Further increases in cash rates in the months ahead can boost income returns for floating rate securities. Interest rate duration remained conservatively positioned over the month between 0.2 years and 0.3 years. The Fund’s strong allocations towards high quality investment grade credit, loans and selective Tier 2 securities have outperformed. Avoiding allocations to ASX-listed hybrids, emerging market corporate debt, and high yield has preserved capital as these sector spreads underperformed investment grade markets over the month.
Performance Commentary - February 28, 2023 The Janus Henderson Diversified Credit Fund (Fund) returned 0.89% (net) and 0.94% (gross). The Fund outperformed the Bloomberg AusBond Bank Bill Index (Benchmark) by 0.65% (net) in February, which returned 0.24% on the month.
Bond yields rose over the month, unwinding half of the strong positive return gained in the month prior. The price fall on the short end of the yield curve outpaced longer-term bond moves as the curve re-adjusted to the Reserve Bank Of Australia’s (RBA) hawkish stance, indicating more rate rises to come.
We have remained cautious on adding duration, as our outlook for further central bank tightening is broadly aligned with market pricing. Meanwhile, overweight duration to swap rates over government bond yields has been a positive contributor.
Globally, credit spreads weakened over the month, with Australia outperforming with local spreads 5 basis points (bps) tighter despite strong supply. Generous coupon income also helped buoy performance in the month. Floating rate credit outperformed fixed rate notes given the rise in bond yields. Active allocations to Tier 2 debt were a strong driver of returns as these assets significantly outperformed. We have favoured generating excess returns by having larger positions in high quality assets with greater liquidity, complemented with sub-sectors like Tier 2 were attractive value has been on offer.
Our minimised allocation to global high yield and no Emerging Market (EM) exposure protected the portfolio. In addition, having fully divested from domestic listed hybrids was beneficial as they still appear poor value relative to other local credit.
Yield levels in the portfolio remain attractive at close to 6%. Further increases in cash rates in the months ahead with continue to boost income returns for floating rate securities. Interest rate duration remained conservatively positioned over the month between 0.2 – 0.3 years. The Portfolio’s strong allocations towards high quality investment grade credit, loans and selective Tier 2 securities have materially outperformed. While avoiding hybrids, emerging market corporate debt, and high yield added value as these sectors had negative returns during the month.
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