
SGH Enhanced Income Trust: September 2024 Quarter Update with Stratton Bell
September 2024 quarter, Stratton Bell, Portfolio Manager
Performance and key drivers*
The SGH Enhanced Income Trust returned 2.2% after fees for the quarter, outperforming the benchmark by 0.8%. This was a pleasing result, driven from two parts.
The first one is that hybrid investments outperformed a lot of the variable investments that we have in the portfolio and that was mainly due to Australian Prudential Regulation Authority (APRA)’s proposed announcement that they made the AT1 securities (hybrid securities) would be phased out over the next two to seven years.
The second reason is that we saw the bank bill swap rate marginally decline over the quarter, and the fixed-income investments in the portfolio performed exceptionally well.
These were the two major drivers of the performance of the fund.
Portfolio positioning
One of the main goals for the Enhanced Income Trust is capital preservation and we have positioned the trust to bode well in high-stress environments.
What we have seen over the past three years is interest rates steadily increase from the pandemic lows to the heights that we are experiencing at the moment.
During this time, we had invested in variable-rate securities, so as interest rates rose, the returns on these investments rose at the same level.
What we’re seeing now is that interest rates have actually peaked. We’ve said a couple of times that we are increasing our fixed-rate exposure, and we have continued to do so over the last quarter.
Our fixed rate exposure is nearly 20% of the portfolio, and while we see interest rates remain elevated for some period of time, we do see over the next 12 months a gradual decline in interest rates and further investment in these fixed-rate securities over the quarter.
Outlook
The outlook for the Enhanced Income Trust is quite positive. What we see in Australia, in Europe and the US is central bank decisions to slowly decrease interest rates from these elevated levels. As this continues to occur, we should see the fixed rate investments for the Enhanced Income Trust perform exceptionally well over the coming period.
Economic growth is slowing at a reasonable level and we haven’t seen a major credit event for some time. From our forecast, we don’t assume that either the US or the Australian economies will have a hard landing but rather a soft landing will occur as interest rates continue to decrease.
Why invest in the SGH Enhanced Income Trust?
Part of the reason why the SGH Enhanced Income Trust may be appropriate for investors is that it can provide a buffer from uncertainty, especially given the share market, in particular over in the US, which is constantly reaching record highs, combined with periods of market volatility, the events in the Middle East and other conflicts around the globe.
The Enhanced Income Trust has been a consistent performer over a long period of time, and given its tilt towards income and capital preservation, it can be a great diversifier for many portfolios.
CLICK HERE TO FIND OUT MORE ABOUT THE FUND.
*The text has been edited for clarity.
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.