Following the launch of FIIG’s inaugural bond fund (the fund), in this first article of a three-part series, we delve into the team behind the fund and their deep experience in fixed income markets. They also discuss the philosophy of the fund, which will be further expanded on in the following editions.
Global interest rate volatility has heightened in the last five years as a function of several events, including the Brexit low growth period, initial loose monetary policy and low growth immediately following the COVID-19 health crisis, and the subsequent tighter monetary policy following a surge in inflation in response to excess money supply and geopolitical tension in Ukraine.
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This has
presented opportunities in the fixed income space, with investors achieving
higher returns without needing to take on excessive risk and volatility in
their portfolios. It’s with this backdrop that FIIG is adding the FIIG
Australian Bond Fund to its product offering.
A
trust-based structure with a 100% Investment Grade (IG) Mandate that will
comprise exposure to the key asset sectors of government and corporate fixed
and floating rate bonds, alongside bank debt and Asset-Backed Securities (ABS)
primarily structured as floating rate notes.
The Fund
will contain long-only exposures with no derivatives and will be benchmarked
against the industry standard Bloomberg Ausbond 0+ index. The MIPS portfolios
were managed to a slightly shorter benchmark, so the Fund will be of longer
duration.
To
celebrate this milestone and give readers further insight, we have interviewed
the Fund’s Investment Management Team, comprised of Kieran Quaine, Head of
Portfolio Management, and Megan Romeo, Portfolio Manager. We asked them to
elaborate upon the Investment Strategy they have successfully deployed
historically within FIIG’s other managed service MIPS, and how they will apply
that strategy to the Fund going forward.
About the Portfolio Management Team
The depth
of experience within FIIG’s Fixed Income Funds Management Team cannot be
understated. They have proven success, as evidenced by the history of returns
achieved by the MIPS portfolios since January 2016.
Kieran Quaine: Head of Portfolio Management
Kieran Quaine is the Head of Portfolio Management and responsible for all investment decisions for FIIG’s Managed Income Portfolio Service and the FIIG Australian Bond Fund. He has over 30 years’ experience in the fixed income markets.
After
graduating from Canberra University, he spent a total of 11 years managing
fixed income portfolios across a complex array of mandates valued at several billion
dollars at various AMP entities including AMP Life, Capital, and Henderson, at
the time the largest fixed income manager in Australia. In addition to AMP, he
was a proprietary fixed income trader for Chemical Bank and since 2008 has been
at FIIG in various senior roles including Head of Facilitation, Risk, Syndicate, and since 2016 Head of Portfolio Management.
Kieran is
responsible for all investment strategies executed within both the Trust and
across the standard and customised MIPS products that have a current FUM of
>$300m. He is responsible for product design, mandate design, and will be
the key conduit for the new Trust, achieving a rating by Asset Consultants and
growth expectations toward $1bn under management.
Megan Romeo: Portfolio Manager
Megan has over 15 years of experience in fixed income markets. She graduated with Honors from the Swinburne University of Technology with a Bachelor of Science (Physics), majoring in Quantum Mechanics, and applies her mathematical capability and programming expertise to specialist modelling analysis of bond markets. Immediately before joining FIIG, Megan served as the Senior Fixed Income Analyst at ICE (formerly Interactive Data) and also spent time at S&P Capital IQ.
Megan joined FIIG Securities in 2015, where she is a foundation member of FIIG's MIPS team and has been integral in securing FUM growth to exceed $450m (at peak). In this role, she has designed and implemented specialist software to, model and trade across a myriad of Investment Mandates subscribed to by in excess of 200 Individually Managed Portfolios totalling approx. $450m (at peak).
Megan will be responsible for the efficient implementation of all investment strategies across both MIPS and the Trust (the Fund) based products, individually responsible for trading, cash flow management, and specific asset selection within asset sector allocation limits.
Why launch an Investment Grade Australian Fixed Income Fund now?
Simply put,
bond yields are higher now than they have been at any time in the last ten
years, and inflation within Australia, the key catalyst that drove the bond
yield increases, is trending lower from peak highs.
- Australian YOY Inflation peaked in Australia at 7.80% in December 2022
- YOY Inflation has since fallen to 7.0% (March 2023) and 6.00% (June 2023).
Whilst recent monthly inflation data has shown momentum in inflation falls is slowing, we are of the opinion that the longer-term outlook is more positive, given the weight of monetary policy impact upon consumer demand.
Whilst the heady days of sub 2.00% inflation experienced during the peak globalisation period are likely behind us, especially given current global geopolitical tension and oil price implications, the weight of higher global monetary policy is likely to continue to quell consumer demand and push inflation lower. In that environment, bonds can perform once again.
The Investment Management Team has long proposed the development of a Trust based product for the FIIG platform. All advantages of liquidity, aggregation, market transacting, investor accounting, and minimum subscription size are clear.
With inflation now showing signs of reversing trend and moving lower, the asset class appears far more attractive than it has for some time. Whilst real yields (total yield less inflation) in Australia are still negative momentum lower in the inflation rate is the key. There will be no alarm bell rung to state that inflation has reversed permanently. If it falls below 4.50%, real yields will be positive again, encouraging savers and sparking economic growth.
What's your investment strategy and philosophy?
Benchmark (government) bond investing has been, and always will be, about current inflation and future inflation expectations over time. Credit (corporate debt) investing has, and always will be, about excess yield (above benchmark rates) compensating investors for current creditworthiness and probability estimates of change in creditworthiness over time.
The
management team will position fund duration (average term to maturity) in line
with their inflation expectations across a diversified holding of government
and non-government debt, the latter of which we believe will reward investors
with sufficiently high yield for the term to maturity of exposure commitment
and any probability of change in future investment grade rating.
The
management team will be active, changing duration and the exposure to asset
sectors aggressively, with the intention of adding absolute and relative value
advantage.
Speak to
your FIIG Relationship Manager who will assist in elaboration on these
discussion points.
Find out more about the FIIG Australian Bond Fund here: FIIG Australian Bond Fund - Now Open for Investment