Spectrum Strategic Income Fund Monthly Summary May 2025

May 2025

Performance

The return for May 2025 saw the portfolio returns rebound strongly. The Fund gained 0.93% bp for the month and outperformed its cash benchmark by 0.6% for the month. Overall, the Fund’s rolling annual return is 5.81%.

Market Insights

Credit markets rallied during the month of May and responded positively to the potential of tariffs being delayed. There was a reset of market expectations buoyed by the delay on tariffs. The equity market outlook improved over the month, and this led to an improved outlook in credit. Credit markets remain vulnerable to changes in policy. The month did see a strong return for the issuers and this caused some digestion issues later in the month.

Key Contributors & Detractors

Overall spreads compressed and the main driver was mean reversion. Credit remains in a positive position with defaults remaining low and profitability for many companies being maintained or improving slightly. Central bank monetary easing’s helped drive a positive sentiment and this allowed spreads to compress. The big winners over the month were bank tier 2 securities and corporate hybrid issues which in general outperformed. The lower cash rate provided some gravitas for corporates whilst senior unsecured banking securities provided some gains.

Outlook & Strategy

Markets will remain focused on tariffs as tariffs become a mechanism for higher inflation. In the absence of inflation then we could expect spreads to compress further, and equities show some continuing performance. The RBA is expected to ease again this year and that will provide a solid boost to the property market and equity markets. Fixed rate returns will improve as fixed rate bond yield fall. A slight underperformance of FRN’s could be expected. However, the credit markets and FRN market should still perform as the FRN notes will capture the excess spread. Markets are expected to remain volatile and will remain very sensitive to any increase in inflation and growth rates slowing. Over time one or both these factors may become an issue.