BLACKROCK INDEXED AUSTRALIAN
BOND FUND
FUND UPDATE
31 December 2015
Investment Performance (%)
1 Mth
3 Mths
YTD
1 Yr
3 Yrs
5 Yrs
Since
Incep
BlackRock Wholesale Indexed
Australian Bond Fund
(Gross of Fees)
0.33
-0.24
2.64
2.64
4.82
6.75
6.21
Bloomberg AusBond Composite
IndexSM (Gross of Fees)
0.33
-0.25
2.59
2.59
4.73
6.62
6.12
Outperformance (Gross of Fees)
0.00
0.01
0.06
0.06
0.09
0.12
0.09
BlackRock Indexed Australian
Bond Fund (Net of Fees)
0.32
-0.28
2.48
2.48
4.66
6.57
5.85
Bloomberg AusBond Composite
IndexSM (Gross of Fees)
0.33
-0.25
2.59
2.59
4.73
6.62
5.98
-0.01
-0.04
-0.10
-0.10
-0.07
-0.06
-0.13
Outperformance (Net of Fees)
*Fund inception: 02/07/1998. ^Fund inception: 14/11/2001
Past performance is not a reliable indicator of future performance. Performance for periods greater than one year is annualised.
Performance is calculated in Australian dollars and assumes reinvestment of distributions. Gross performance is calculated gross of
ongoing fees and expenses. Net performance is calculated on exit-to-exit price basis, e.g. net of ongoing fees and expenses.
Fund Performance (Gross of Fees) to 31 December 2015
200%
Fund
Benchmark
150%
100%
50%
0%
-50%
Dec
1999
Dec
2001
Dec
2003
Dec
2005
Dec
2007
Dec
2009
Dec
2011
Dec
2013
Dec
2015
Performance Summary
Market Review
The primary focus of global bond markets was on the US Federal Reserve meeting on
December 17 which resulted in a 25 basis point increase in the policy rate. Such a move was
broadly anticipated by market participants. US treasury yields rose during the month while
the curve flattened. The ECB, on the other hand, after indicating a disposition to further ease
policy failed to follow through leading to increases in German bond yields.
Corporate bond markets came under notable pressure as oil prices continued to decline
sharply, which was further exacerbated by headlines around the liquidation of a sizeable US
high yield mutual fund.
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Domestically, despite reaffirming an easing bias at the RBA Board
meeting on December 1, it appears that the RBA has no immediate
plans to cut the policy rate. The maintenance of an easing bias in
December appeared to reflect the recent weakness in inflation:
“[RBA Board] members observed that the outlook for inflation may
afford scope for further easing of policy, should that be appropriate
to support demand”. At the same time, however, the RBA gave a more
upbeat assessment of the economy: “the [RBA] Board again judged
that the prospects for an improvement in economic conditions had
firmed a little over recent months and leaving the cash rate unchanged
was appropriate at this meeting”.
The Australian 10 year bond yield increased very slightly during the
month finishing at 2.88% or 2 basis points higher than at the end of
November. The 3 year bond yield fell 8 basis points to 2.02%. Physical
yields on 3 month bank bills increased 10 basis points to 2.375%.
The Bloomberg AusBond Composite Bond Index returned 0.33% in
December for a 12 month return of 2.59%.
The fund matched the return of the benchmark in December.
The benchmark added $6.3 billion (face value) in new issues and
taps over the month but maturities and buy-backs left the market
capitalisation of the benchmark marginally lower at $862 billion.
Treasury issuance totaled $4.2 billion while semi-government
issuance was minimal at $0.7 billion. The non-government sector
added $1.3 billion to the benchmark.
The funds largest active issuer exposure is 0.20% to KFW with
the largest active underweight being -0.28% to BNG. The portfolio
currently has 392 issues versus 534 in the benchmark. The funds
index duplication ratio is 93%.
Sector Exposure
Govt
45.89
46.04
Semi-Govt
26.52
26.57
Supra/Sovereign
14.24
14.20
Corporates
12.98
12.97
MBS
0.29
0.21
Cash/Other
0.08
0.01
0.0%
<3
30.29
30.03
3-5
23.75
24.08
5-7
14.58
14.65
7 - 10
19.23
19.12
>= 10
12.15
12.13
0.0%
40.0%
50.0%
Benchmark Market Value %
10.0%
Market Value %
20.0%
30.0%
40.0%
Benchmark Market Value %
Quality Exposure
AAA Rated
AA Rated
BBB Rated
NR Rated
This is against a backdrop of some residual uncertainties in Europe,
uncertainties about the Chinese growth outlook and the likely policy
response and some stresses in emerging markets.
Yield
As outlined above the RBA at the moment is of the view that current
low inflation levels give them the scope to cut the policy rate if they
arrive at a judgement that demand needs further support. However,
in their view they are yet to arrive at the point where they think that
demand needs that further support. However, in our view the housing
sector, which has been the engine of private final domestic demand
(either directly or indirectly through household spending) is in fragile
balance. Building approvals appear to have peaked foreshadowing
some future decline in residential construction. At the same time
surveys indicate consumers are increasingly circumspect about
whether it is a ‘good time to buy’ a house and there are signs that
30.0%
Maturity Exposure
Looking ahead, global financial markets continue to assess the
prospect of divergent monetary policy in the key developed markets,
with a particular focus on the pace of Fed tightening through 2016.
Weakness in commodity markets, particularly oil, suggests that that
in the near-term volatile markets are likely as we go into 2016.
The challenge in Australia remains one of transitioning growth
leadership from mining investment to other sources of activity
growth. Capex expectations remain bleak. Mining investment looks
like subtracting around 2 percentage points from GDP growth in the
coming fiscal year while business investment elsewhere remains
languid. There has been some growth over the past year in net export
volumes and in household spending and residential construction (the
former being largely motivated by the latter and “funded” by a decline
in the savings rate given lacklustre wage growth). Encouragingly,
labour market indicators have stabilised after a period of weakness
perhaps reflecting some growth in the services areas most exposed
to the decline in the $A.
20.0%
Market Value%
A Rated
Market and Outlook Commentary
10.0%
73.49
73.44
18.31
19.13
5.21
4.79
2.91
2.59
0.00
0.05
0.0%
25.0%
Market Value %
Govt
2.47
2.46
Semi-Govt
2.64
2.65
Supra/Sovereign
2.83
2.84
Corporates
3.54
3.51
MBS
3.05
3.22
Unclassified
0.00
0.00
0.00
Yield
50.0%
75.0%
Benchmark Market Value %
1.00
2.00
3.00
4.00
Benchmark Yield
Top 10 Issuers
Issuer
Weight %
AUSTRALIA (COMMONWEALTH OF)
45.4
QUEENSLAND TREASURY CORPORATION
9.9
NEW SOUTH WALES TREASURY CORPORATION
6.3
TREASURY CORPORATION OF VICTORIA
4.3
WESTERN AUSTRALIAN TREASURY CORPORATION
3.9
KFW
3.5
EUROPEAN INVESTMENT BANK
1.9
LANDWIRTSCHAFTLICHE RENTENBANK
1.4
INTERNATIONAL BANK FOR RECONSTRUCTION
AND DEVELOPMENT
1.3
ASIAN DEVELOPMENT BANK
1.2
house prices are decelerating. The regulators have also implemented
a number of macro-prudential measures. These have resulted in ‘out
of cycle’ mortgage rate increases from the banks which are likely
to intensify headwinds to residential construction and household
spending.
Domestic markets are pricing some probability of a further cut in
interest rates by the RBA with around a full 25bp reduction ‘priced’ out
to the end of 2016. Given our concerns surrounding downside risks to
activity growth and fragility in the housing sector we expect that the
RBA does cut rates again in 2016.
We judge the risks on the AUD to be weighted toward the downside.
The AUD view reflects our assessment regarding headwinds to growth
(particularly capex but potentially housing); the likely course of the
terms of trade (reflecting declining prices for Australia’s commodity
exports); a possible further RBA rate cut; and an expectation that the
US Federal Reserve will raise the policy rate again in 2016.
Industry Contribution to DxS
Financials
0.02858
Consumer Discretionary
0.01089
Technology
0.00750
Materials
0.00433
Energy
0.00149
Industrials
0.00130
Consumer Staples
0.00093
MBS
-0.00107
Utilities
-0.00321
Communications
-0.00350
Government
-0.02926
-0.04
-0.02
0.00
0.02
0.04
0.06
Active DxS Contribution (o)
Risk Characteristics
Fund
Benchmark
Difference
Modified Duration (Years)
4.65
4.66
0.00
Duration x spread
1.34
1.33
0.01
Yield
2.71
2.70
0.00
Average Coupon (%)
4.76
4.75
Average Maturity (Years)
5.56
5.56
Issuer Contribution to DxS
ANU
0.00777
WFC
0.00572
0.01
DEXUS
0.00549
0.00
AAPL
0.00518
AQUA
0.00511
Contribution to Modified Duration
LLCAU
0.00494
Govt
2.55
2.55
RABOBK
0.00491
Semi-Govt
1.16
1.16
DUEAU
0.00483
Supra/Sovereign
0.52
0.53
SGPAU
0.00440
Corporates
0.42
0.42
CEUAU
0.00429
MBS
0.00
0.00
-0.00399
0.00
0.00
CAF
Other
WESAIR
-0.00407
EIBKOR
-0.00427
KBN
-0.00483
DOWAU
-0.00502
SAFA
-0.00565
NTTC
-0.00567
GS
-0.00683
NEDWBK
-0.00864
BNG
-0.01264
0.00
Yield
1.00
Benchmark Yield
2.00
3.00
-0.015 -0.010 -0.005 0.000 0.005 0.010 0.015 0.020
Active DxS Contribution (o)
Contribution to Duration x Spread
Semi-Govt
0.40
0.40
Supra/Sovereign
0.34
0.34
Corporates
0.60
0.58
MBS
0.00
0.00
Unclassified
0.00
0.00
0.00
Yield
0.50
Benchmark Yield
1.00
About the Fund
Investment Objective
The Fund aims to match the performance of the Bloomberg AusBond
Composite IndexSM before fees.
Fund Strategy
The strategy aims to track the benchmark by closely matching the
distribution of the benchmark’s major risk and return factors. This is
done using a methodology commonly referred to as stratified sampling,
where the benchmark and the investment portfolio are broken down
into “cells” of securities with similar risk and return factors. The
major risk and return factors are interest-rate risk, sector risk and
specific (individual security) risk. We select securities that match the
overall characteristics of each cell in amounts consistent with the
index weighting and modified duration of the cells they represent. By
matching at the cell level, the overall risk and return characteristics of
the portfolio will closely match those of the benchmark.
Should be considered by investors who …
Seek a broad exposure to Australian bonds.
Seek a fund that uses a stratified-sampling approach so returns
match those of the Australian bond market before fees.
Have a long term investment horizon.
Fund Details
BlackRock Wholesale Indexed Australian Bond Fund
APIR
Fund Size
Buy/Sell Spread
Tracking Error (3 Years p.a.)
BGL0008AU
2,122 mil
0.05%/0.07%
0.02%
BlackRock Indexed Australian Bond Fund
APIR
Management Fee
BGL0105AU
0.20% p.a.
Issued by BlackRock Asset Management Australia Limited (AFS License No. 225398, ABN 33 001 804 566) (“BlackRock”). BlackRock is the responsible
entity of the Fund(s) referred to in this document. An Offer Document for the Fund(s) is available from BlackRock. Potential investors should consider
the Offer Document in deciding whether to acquire, or to continue to hold, units in the Fund(s). BlackRock, its officers, employees and agents believe that
the information in this document is correct at the time of compilation, but no warranty of accuracy or reliability is given and no responsibility arising in
any other way for errors or omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock, its officers, employees
or agents. This document contains general information only and is not intended to represent general or specific investment or professional advice.
The information does not take into account an individual’s financial circumstances. An assessment should be made as to whether the information
is appropriate in individual circumstances and consideration should be given to talking to a financial or other professional adviser before making an
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If you have any queries relating to any of this information or to obtain a copy of the Offer Document for the Fund(s), please contact your relationship
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