For the quarter ended June 30, 2022, Fund positions delivered -6.87% at NAV versus benchmark losses of -6.36% by the Bloomberg Barclays U.S. 5-10 Year Corporate Bond Index over the same period.
- Contributors: N/A
- Detractors: Financial / Real Estate Sector credit spreads, Office, Infrastructure, Specialty real estate types
- Outlook: Rate risk took a backseat to spread risk over 2Q2022 as wider credit spreads to Financial and Real Estate sector debt pushed prices lower in both broad and sector IG and HY benchmarks.
Quarter in review
- As downside risks continue to reign through 2Q2022, no real estate sectors contributed to fund performance. Debentures from Infrastructure REIT issuers continue to lead losses along with Office REIT issuers as dwindling utility, inflation, and speculation around issuer credit health deal a blow to credit risk premia for the sector.
- Corporate credit is staged to rebound as real rates cross into positive territory and all yield curve tenors are subject to move as term structures shift forward. We continue to remain conscious of portfolio impacts resultant of sustained inflation, yield curve inversions, and market sentiment.
- We expect credit spreads to be correlated with market sentiment over financial conditions. We believe default risks pose diminished risk to the REC portfolio as monthly assessments eliminate issue(r)s that are unable to meet debt obligations (see methodology for detail).
Tags: ETF, Income, Interest rates