Arculus Fixed Income Fund

The investment strategy of the Arculus Fixed Income Fund is to identify appropriate investments from the pool of Australian sovereign and Australian senior bank bonds that are expected to generate a sufficiently high yield, commensurate with the assumed risk, with minimum volatility of returns. The Fund is not benchmark aware so is without a duration target. It is focused on achieving an absolute return of the 90-day BBSW rate plus 150bps. The Fund is best suited to investors who seek a low to medium risk investment over a 1 to 3-year period. 

• Aim: capital preservation with yield above bank bills. Target BBSW + 1.5%.
• Holds only Australian senior bank securities and sovereign debt issued by commonwealth and state governments.
• All holdings must be REPO eligible - this provides enormous liquidity.
• No leverage. No shorting no currency risk.
• Management Fee 0.368% +GST, NO performance fees.

Description

The Fund holds only Australian senior bank securities and sovereign debt issued by commonwealth and state governments.

This includes commonwealth and state government issued debt securities, government-owned enterprise and senior bank securities that were issued as expecting to meet the repo eligibility criteria of the Reserve Bank of Australia (RBA).

Significant Benefits

Access to an Australian specialist fixed income manager.
Arculus’ key strategy focuses on capital preservation and income, and offers investors expertise in Australian fixed income.

Active management

The Fund is actively managed and invests in investment grade Australian sovereign bonds and senior Australian bank debt. The Fund seeks to provide returns in excess of cash with a low potential for loss of capital.

Income and liquidity

The Fund provides investors a high degree of liquidity in all market conditions and offers investors access to regular income via quarterly distributions.

Fund availability 
This Fund can be accessed by investing directly, or indirectly, using the BT Panorama, Allan Gray, HUB24, Netwealth and Macquarie Wrap platforms. 

1. We don’t take a performance fee, so we are capital preservation focused.  Many of our peers take performance fees that reward them for taking risk in an asset class where returns are driven by the coupon yield. Given that the 90-day BBSW rate is at 4.41%, investors should not be taking added risk at this time.
   
   
2. We are an absolute return manager. What this means is that we are benchmark unaware and will vary duration at different points in the economic cycle. In times of rising rates (and we believe the inflation story is just getting going) we are very low fixed duration and due to the systemic economic risk of the rate rises also currently low credit spread duration. When rates peak, we will increase duration and benefit from the capital gains in a falling rate environment.
   
   
3. We focus on running the portfolio and leave the operation and administration of the Fund to specialist third parties, unlike some other fund managers. The funds are monitored for mandate compliance by DDH Graham Limited ($14bn FUM) and valued by DDH Graham Limited. There are 4 eyes on every transaction: Custody - Administration - Investment Management and the Responsible Entity.
   
   
4. The investment universe for all our funds is Australian issuers only in AUD. What this means is that there is no currency risk, and regulatory risk changes are limited to Australia and bonds that are issued under Australian law. This means reduced risk. We do not employ leverage either directly or through the use of derivatives.
   
   
5. We have a strong and simple ESG approach that will deliver an ESG outcome that is easily explained.
   
   
6. We have no mandated exposure to the MBS, CMBS or ABS securities and no property loans or property developer exposures.

Fund objective

To provide income and capital stability and a high degree of liquidity in all market conditions. The total return will mainly comprise income from security income payments. The target rate of return is the Bank Bill Swap Rate plus 1.5% before fees averaged over the economic cycle. The Fund invests only in the highly liquid Australian Sovereign and Senior Bank (ADI) bonds that form part of the APRA capital liquidity requirements. These bonds rank higher in a bank’s capital structure than term deposits and the securities that APRA require as Total Loss Absorbing Capital (Equity, AT1, T2). As such the liquidity is high enough to always be able to meet any redemption at T+3.

Fund strategy

The investment strategy of the Arculus Fixed Income Fund is to identify appropriate investments from the pool of Australian sovereign and Australian senior bank bonds that are expected to generate a sufficiently high yield, commensurate with the assumed risk, with minimum volatility of returns. The Fund is not benchmark aware so is without a duration target. The Fund is best suited to investors who seek a low to medium risk investment over a 1 to 3-year period.

Arculus applies a disciplined and conservative approach to the task of optimising returns to investors. The portfolio manager has a universe of internally approved fixed interest securities from which to select the portfolio. Approval is initially granted for the issuing company based on credit analysis.

Subsequently the structure of the individual interest rate security from that company is assessed in detail and approved for investment if appropriate. The pool of available securities is then constantly monitored in terms of yield provision as well as continuing to meet required credit standards.

The table below shows the Fund’s portfolio construction asset class weights:

¹ _{Investment grade is defined as the security being rated at least BBB by S&P (or equivalent by a recognised rating agency). In the case where there is no specific security rating, the investment manager will assign a rating for the security relative to the company’s senior rating. If there is no senior rating the investment manager will assign a senior rating and subsequently a security rating.}

Additionally individual weighting constraints limit the exposure to one corporate security at 10% of the Fund’s assets and 20% for exposure to one company. There are no restrictions on the weighting to government issued securities.

The Fund will also hold cash to manage the short-term liquidity of the Fund to meet operational expenses and unitholder related payments, including distributions and unitholder withdrawals.

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