Macquarie Dynamic Bond Fund aims to generate attractive returns by dynamically investing in global fixed income instruments. It provides diversification against equity risk as well as capital growth and some income. The Fund provides exposure to other fixed income sectors such as high yield and emerging markets debt when these are expected to outperform.
Fund duration was relatively stable in September at around 5.5 years. Our medium-term view is to add duration as yields rise though we did not take advantage of the recent rise for a number of reasons. Firstly, the relaxation of fiscal policy this year has led to a significant increase in bond supply, and we feel that this is in the process of being priced into the market. Further the US Federal Reserve (Fed) has guided markets to move away from potential easing of policy in 2024 and the data has mostly supported this. One of the reasons why bond markets performed earlier this year while the Fed was still hiking was that rate cuts were being priced into the market for 2024. These cuts are in the process of being unwound which has led to higher yields at the end of a policy rate hiking cycle – which is unusual.
The Fund made some changes to its geographical allocations. Gilts have recently performed very strongly against peers as better than expected inflation data is likely to lead to fewer Bank of England rate hike. This saw the Fund move gilt exposure back into European duration. The Fund also added to long end Japanese exposure given the high yields on offer on a hedged basis. Our holdings of Canadian securities performed well against US Treasuries and the Fund shifted those back into US Treasuries on a valuation’s basis. The Fund continues to hold most duration in short to intermediate sections of the yield curve and the Fund has benefited from recent yield curve steepening.
The Fund’s credit positions contributed to outperformance over the benchmark for September. Positive contributions were spread amongst sectors, reflecting positive security selection in investment grade (IG), mortgage-backed securities, and a small contribution from the modest high yield (HY) position. Key individual contributors included credit hedges (as volatility began to increase late in the month), and selected mortgage and asset backed securities. The Fund made small changes to credit exposure over the month, reducing some remaining higher beta credits after very strong performance. This included trimming transport-related exposures in Europe, such as Heathrow airport and Abertis, a toll road operator – with spreads fully reflecting the more positive outlook and not compensating for the risk of volatility, in our view. The Fund added lower beta sectors such as utilities and healthcare in place of the sales. We continue to expect opportunities to add to credit positions over time – particularly as we see spreads as relatively tight, against a backdrop of high economic uncertainty and increasing volatility in the underlying bond market.
What is Macquarie Dynamic Bond Macquarie Dynamic Bond is an Managed Funds investment product that is benchmarked against Global Aggregate Hdg Index and sits inside the Fixed Income - Bonds - Global / Australia 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 Macquarie Dynamic Bond has Assets Under Management of 703.49 M with a management fee of 0.61%, a performance fee of 0.00% and a buy/sell spread fee of 0.82%.
How has the investment product performed recently?
The recent investment performance of the investment product shows that the Macquarie Dynamic Bond has returned 1.24% in the last month. The previous three years have returned -0.22% annualised and 3.64% each year since inception, which is when the Macquarie Dynamic Bond 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 Macquarie Dynamic Bond first started, the Sharpe ratio is NA with an annualised volatility of 3.64%. The maximum drawdown of the investment product in the last 12 months is -2.14% and -12.15% 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 Macquarie Dynamic Bond has a 12-month excess return when compared to the Fixed Income - Bonds - Global / Australia Index of 0.99% and 0.41% 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. Macquarie Dynamic Bond has produced Alpha over the Fixed Income - Bonds - Global / Australia 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 - Bonds - Global / Australia Index category, you can click here for the Peer Investment Report.
What level of diversification will Macquarie Dynamic Bond provide?
Macquarie Dynamic Bond has a correlation coefficient of 0.94 and a beta of 1.12 when compared to the Fixed Income - Bonds - Global / Australia 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 Macquarie Dynamic Bond and its peer investments, you can click here for the Peer Investment Report.
How do I compare the Macquarie Dynamic Bond with the Global Aggregate Hdg Index?
For a full quantitative report on Macquarie Dynamic Bond compared to the Global Aggregate Hdg Index, you can click here.
Can I sort and compare the Macquarie Dynamic Bond to do my own analysis?
To sort and compare the Macquarie Dynamic Bond financial metrics, please refer to the table above.
Has the Macquarie Dynamic Bond 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.
How can I invest in Macquarie Dynamic Bond?
How do I get in contact with the Macquarie Dynamic Bond?
Comments from SMSF Mates
SMSF Mate does not receive commissions or kickbacks from the Macquarie Dynamic Bond. All data and commentary for this fund is provided free of charge for our readers general information.
Performance Commentary - August 31, 2023 The Fund added around 40bps of duration in August. The rise in the long end of the Japanese yield curve made for good entry levels to add exposure in our view, particularly when considering this translates to around 7% on a currency hedged basis. The Fund also used the back up in bond yields to add some Australian and European duration as those central banks are close to finishing their policy tightening cycles. The Funds duration holding of 5.7 years is relatively high, compared to recent history, with yields now in some markets at decade highs and most of the policy tightening behind us. The Funds exposure remains to US Treasuries with a bias to holding short to medium tenor securities given how flat yield curves are in most developed market sovereign bond markets.
The Fund’s credit positions contributed to outperformance over the benchmark for August. Positive contributions from investment grade were the main contributor, via security selection in BBB issuers. This was somewhat offset by security selection in emerging markets. Mortgage-backed securities (both US Agency MBS, but particularly Australian Residential Mortgage-Backed Securities (RMBS) were positive contributors, reflecting ongoing stable excess running yield on these securities. Emerging markets detracted, reflecting underperformance of small holdings of African sovereign issuers.
The Fund made small changes to credit exposure over the month, favouring further additions to Agency mortgage securities as historically wide spreads due to volatile rates markets, remain attractive. The Fund trimmed exposure to selected higher beta issuers that had performed strongly (such as International Consolidated Airlines) and added to mid-curve Australian corporates and selected new US issuance, where we see specific opportunities. The Fund also participated in new Australian RMBS issuance during the month, viewing spreads there as an attractive long-term source of carry. We continue to expect opportunities to add to credit positions over time – but at higher spread levels, given the likelihood of economic weakness in the medium term.
Performance Commentary - July 31, 2023 The Fund covered some of its underweight Japanese govt bond position after the Bank of Japan announced some changes to its Yield Curve Control policy. Overall interest rate risk remained reasonably steady as duration was trimmed in core holdings such as US Treasuries and Australian government bonds. The Fund added to yield curve steepening positions over the month as the global central bank tightening policy reaches its latter stages.
The Fund’s credit positions contributed to performance versus the benchmark for July. Amongst credit sectors, security selection within investment grade was a key contributor, as were emerging markets holdings due to tighter spreads in all risk markets. Amongst individual issuers, Australian and global financials were amongst the largest contributors (Morgan Stanley, Westpac and NAB, amongst others), as the global banking sector rebounded strongly after lagging for several months. Amongst underperformers, AT&T modestly detracted, as reports of lead sheathing on some of the company’s legacy wireline network added uncertainty to the picture – we remain very comfortable with the long-term fundamentals of the issuer.
The Fund made small changes to credit exposure over the month, adding modestly to global issuers to maintain yield in an ongoing uncertain environment. The Fund further added to Agency MBS securities, with spreads on these sectors remaining at the upper end of historical ranges, which continue to offer attractive yields with very strong fundamental credit quality. The Fund also added credit downside protection via options, which we believe provides low-cost and positive-asymmetric protection for the portfolio, in the case of a meaningful sell-off in the coming months. We continue to expect opportunities to add to credit positions over time – but at higher spread levels, given the likelihood of economic weakness in the medium term.
Performance Commentary - June 30, 2023 The total Funds duration remained broadly stable over June with a few geographical moves to note. The Fund added exposure to UK gilts as bonds cheapened after a succession of strong economic prints saw the Bank of England (BoE) surprise the market with a 50bp hike. The Fund also added Canadian exposure on a relative value basis by reducing core US Treasury holdings as the yield spread between the two narrowed. Additionally, the Fund also switched out of New Zealand bonds into Australian sovereigns, again after a reasonable narrowing of that yield spread.
The Fund’s credit positioning added to performance versus the benchmark in June, as credit spreads rebounded (tighter) quite sharply. Within the Fund’s credit exposures, BBB rated investment grade corporates and emerging markets were the strongest contributor, reflecting the aforementioned reduced fears of imminent recession; financials and small REIT exposures were also strong performers. Top individual performers included Australian banks such as Westpac and NAB (subordinated debt, in particular), US major banks (Bank of America and Morgan Stanley), and Carnival Corp, one of the few remaining high yield exposures, that produced very strong results and outlook.
The Fund made small changes to credit exposure over the month, adding to Australian financial issuers (where spreads remain more attractive). The Fund also further added to the US Agency Residential Mortgage-Backed Securities early in the month, with spreads on that asset class hovering near post financial crisis wides. We continue to expect opportunities to add to credit positions over time – but at higher spread levels, given the likelihood of economic weakness or recession later this year.
Performance Commentary - May 31, 2023 The Funds core duration strategies remained stable in May, with the Funds main exposure largely held in US Treasuries as the US Federal Reserve (Fed) gets closer to completing this aggressive policy tightening cycle.
The Fund also added some exposure to UK gilts given the cheapening of that curve as recent inflation data has been higher than expected. Overall Fund duration fell as the rally in Japanese bond yields provided a good opportunity to put in place hedge strategies to protect the portfolio on the chance that the Bank of Japan relaxes its yield curve control policy – an event, that if it were to occur should see a sharp rise in Japanese bond yields.
The Fund’s credit positioning added value over the month, even as credit spreads widened modestly. The value was added chiefly through protective option positions – these were removed mid-month amidst a weak market backdrop, locking in gains. Security selection within investment grade corporates and Emerging Markets also contributed positively.
The Fund made modest additions to credit exposures during the month, adding exposure in US, European and Australian new issuance, with elevated overall spreads and some deals offering attractive concessions. The Fund added Australian utility Ausnet Services, European insurer Allianz, and US cable operator Comcast – all high-quality issuers with new bonds sold during the month. The Fund removed some high yield credit hedges in the first weeks of the month, with spreads at year-to-date wides (excluding the brief spell of volatility during March), banking profits as those positions were put in place at much tighter spreads in February. The Fund also further added to the US Agency Residential Mortgage-Backed Securities: an asset class that had performed very poorly through 2022 and early 2023, and that now offers historically wide spreads. We continue to expect opportunities to add to credit positions over time – but at higher spread levels, given the likelihood of economic weakness or recession later this year.
Performance Commentary - April 30, 2023 The Fund’s interest rate duration remained steady during April at 5.4 years, with little change in geographical allocations. US Treasury bonds remain the largest allocation in the Fund as the US Federal Reserve’s (Fed) tightening cycle looks set to end at the within the next month or so, likely sooner than both the European Central Bank and the Bank of England. Interest rate strategies made a small positive contribution to the Funds outperformance in April.
The Fund’s credit allocations also modestly contributed to the Fund’s outperformance during the month. This was reflective of smaller moves in both credit and bond markets month-on-month, despite still overall elevated volatility. Amongst credit sectors, investment grade (IG) was the largest positive contributor, reflecting continued excess running yield. Most other credit segments provided very small impacts either way. Financials were the strongest sector performer this month, reflecting some rebound in overall sentiment, especially amongst larger US and Australian exposures. Emerging markets security selection was a very small negative contribution, with some higher beta issuers (such as Egypt) weakening.
The Fund made modest adjustments to credit exposures during the month, slightly reducing exposure to European and US IG credit. Spreads in this sector, particularly outside financials, recovered much of their March weakness. As such, re-assessing credits such as Honeywell (a high quality US industrial, but trading at one-year tights) was appropriate. The Fund also added downside protection in credit derivatives, to offer some offset if broad market weakness were to resume. The cost of option hedging, in particular, has fallen sharply as implied volatilities have reduced after the March volatility. The outlook continues to be uncertain and likely to be volatile. We continue to expect opportunities to add to credit positions over time, but at higher spread levels, given the likelihood of economic weakness or recession later this year. The Fund remains positioned with significant liquidity to take advantage of opportunities as they arise. We believe markets will continue to be volatile as we navigate the challenges of bringing inflation down, while trying to avoid overtightening policy. The Fund’s credit exposures overall are heavily weighted to IG, with small emerging markets and very modest high yield holdings. We think that best reflects the environment looking ahead and look forward to opportunities to add to higher beta sectors.
Performance Commentary - February 28, 2023 The Fund’s interest rate duration rose by around 50bps in February to 5.70%. The rise in yields brought about by stronger data and expectations of higher central bank policy has provided another opportunity to add duration at attractive levels. The increase in interest rate exposures were centered in our core holdings of US Treasuries and Australian government bonds.
The Fund’s credit exposures positively contributed to performance versus the benchmark over the month, with global investment grade credit and Australian c the key drivers of that contribution. Amongst individual credits, Australian and bank exposures were key positive contributors, as subordinated debt in the local market continued to perform well. US investment grade credit exposures were a detractor, with holdings of JP Morgan and Valero, a US refiner, giving up a portion of their recent impressive gains.
The Fund trimmed some higher beta European credits during the month (including a real estate investment trust and a crossover rated industrial issuer) after strong performance. European credit still offers a spread pickup versus other global markets, but the rebound has been significant – with structural energy and inflation problems still lingering. The Fund also trimmed exposures to longer dated Australian corporates after significant spread tightening.
The Fund’s credit exposures overall have come down materially and are heavily weighted to investment grade, with small emerging markets and very modest high yield holdings. We think that best reflects the environment looking ahead and look forward to opportunities to add to higher beta sectors.
Performance Commentary - December 31, 2022 Fund duration was trimmed again last month taking advantage of the continued strength in bond prices as markets anticipate a top in inflation and potentially less central bank tightening. The Fund maintains its core allocation to Australian government bonds and US Treasuries along with yield curve flattening biases in major holdings as central banks continue to tighten policy.
Credit positioning added value to the strategy over the month: investment grade credit benefitted from tighter spreads and increases in allocations made over the last several months, and emerging markets were also positive. The largest industry sector contributions were from financials, transportation, and capital goods.
Key individual names contributing to the credit result again included major financial issuers, such as bonds issued by US banks Morgan Stanley, as well as subordinated debt from Australian major banks. Underperformers included Aroundtown, a European REIT, and Warner Bros Discovery: hit by continued elevated integration costs as the issuer moves to get the costs of its streaming content down to an appropriate level.
The Fund trimmed its credit positioning over the month – mostly in investment grade – reflecting much tighter spreads near the lows of the post-Ukraine invasion environment. Investment grade allocations in both USD and EUR had been added earlier in the year at more attractive spread levels, and reducing the exposures somewhat sets the portfolio up well for an uncertain economic outcome. The Fund’s credit exposures overall are heavily weighted to investment grade, with small emerging markets and very modest high yield holdings. We think that best reflects the environment looking ahead and look forward to opportunities to add to higher beta sectors.
Product Snapshot
Product Overview
Performance Review
Peer Comparison
Product Details