SGH Enhanced Income Trust update – September quarter 2025

Enhanced Income Trust update: Navigating rate cuts and credit volatility

In this Enhanced Income Trust update, Stratton Bell, Portfolio Manager of the SGH Enhanced Income Trust, discusses the September quarter 2025 performance and positioning. He explains how the fund is currently performing and the move away from listed hybrids and how interest rate expectations are shaping up. 

Watch/Listen to the September Quarter 2025 Enhanced Income Trust update ⏬:

Transcript:

Quarterly performance recap

We’re really pleased at the returns generated from the SGH Enhanced Income Trust. The fund returned 1.7% for the quarter versus the benchmark of 1.2% outperforming by 50 basis points.

The key drivers of performance

The underlying drivers of the performance were interest rates. So, on the short-term interest rates, we saw not much movement, but it was more on the three-to-five-year interest rates.

We saw that they rose by 50 basis points, and that was due to some economic data, which came out from inflation and also employment. The performance of the fund, as you can imagine, as fixed rates increased, our fixed rate exposures actually underperformed due to these higher rates. But on the floating rate side, they performed exceptionally well, and we had a number of securities that we had previously bought at mispriced levels that performed really well.

Current position of the fund

How we’re positioning the fund at the moment is we have continued to move away from listed hybrids. That’s not because we see any risks in the horizon, but we see more opportunities in the OTC market. Hybrids now account for about 40% of the investments versus fixed rates which is at 36% of the portfolio.

And we positioned the portfolio for a continual decrease of interest rates over the next 12 to 36 months. And how we see the portfolio performing is we believe that across all economic cycles, the portfolio should perform fairly well. It’s defensively positioned and we think that as interest rates continue to come down, the fixed rate investments will continue to perform even better than what they have done in the last quarter and the last 12 months.

The market’s currently implying rate cut in March 2026, and we believe that the RBA may be pressed to decrease rates a little bit more over the next 12 months as well.

Why invest in the SGH Enhanced Income Trust now?

So, the reasons why I’ll probably get you to consider this as part of your investment portfolio is probably two reasons. The first one is the yield maturity of the portfolio is above 5% over the next 12 months, and that’s after fees and excluding any franking credit benefits that may come through from the hybrid investments. And the second point is that given the volatility we’ve seen across markets, these instruments have performed exceptionally well and have been uncorrelated with many other asset classes making this a great diversifier for your portfolio.

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*The text has been edited for clarity.

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Disclaimer

This fund update has been prepared by SG Hiscock & Company (SGH) to provide general information only and is not intended to take the place of professional advice. It does not take into account the investment objectives, financial situation or particular needs of any particular person.

Equity Trustees is the responsible entity for the SGH Enhanced Income Trust. Neither SGH, Equity Trustees nor any of its related parties provide any warranty of accuracy. Past performance should not be taken as an indicator of future performance. You should obtain a copy of the Product Disclosure Statement before making a decision about whether to invest in this product. Follow the link for the full disclaimer: https://sghiscock.com.au/podcast-disclosures-and-disclaimers/.