SGH Enhanced Income Trust – Quarterly Update

March 2024 quarter, Stratton Bell

Performance and key drivers*

The SGH Enhanced Income Trust had a very pleasing result for the March 2024 quarter.

The Trust recorded a return of 1.9% net of fees and before franking credits outperforming the benchmark by 0.6%.

The quarter marks the four-year anniversary of the fund where the fund has outperformed the benchmark by 3.8% per annum over the past four years with a net return after fees of 6%.

When we look at the last quarter, interest rates were relatively stable, so we saw very little volatility during the month. But what we have seen is that any rate cuts for the near future have been pushed out by about six months, which is going to be very positive for the fund.

Positioning

The fund is positioned to perform well during high-stress environments.

In the last quarter though we saw some pretty strong economic data coming out of both the US and Australia.

We saw inflation continues to fall, but the falling inflation is actually a little bit lower than what the market expected.

Also looking at the labour rates in Australia and the US; they came in a little bit stronger. This means that inflation is probably going to last a little bit longer than what the market had expected. as a result the interest rates will stay at these levels for probably at least another six months and could actually last a little bit longer.

As for how we’ve changed the position of the fund, there hasn’t been a material change in the fund, but what that has meant is that there’s more opportunities for fixed-rate investment. And as we continue to shift the fund from floating rate investments to fixed-rate investments, it provides us with multiple opportunities to find these assets for the trust.

Outlook

Over the next 12 months, we’re actually very positive for the performance of the trust.

If we look at the cash yield of the portfolio, it’s very similar to where it was last quarter, which is around 7%, and that is after fees. Part of the reason why we’re optimistic is given the majority of the investments in the fund are floating rate investments, which with the latest economic data means that they are likely to stay higher for longer than what the market had expected. This gives us even more time to increase our fixed-rate exposure of the fund. And especially when you consider the volatile environment that we’re experiencing at the moment, this has historically proven to be a very good and solid returning strategy through most economic cycles.

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*The text has been edited for clarity.

 

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The document contains general information only. Reference to either individual securities or other investments should not be considered as investment advice. We strongly encourage you to obtain professional advice before making an investment in securities that have been mentioned. Documents you should consider prior to making an investment could include the relevant Product Disclosure Statement and the accompanying Target Market Determination. If you would like further information on financial products that SG Hiscock & Company Ltd (AFSL 240679) is the investment manager for, contact the Client Services team on 1300 133 451, visit the website www.sghiscock.com.au or contact your financial adviser.  Any investment is subject to risk, including possible loss of income or capital invested.