Supervised Global Income Fund

The Supervised Global Income Fund is a fund available to retail investors managed by Supervised Investments (ACN 125 580 305). The fund’s aim is to outperform the Bloomberg AusBond Bank Bill index +2.5%.

The fund inception was in 2009 and at 31 August, 2016 had nearly $18 million under management. According to the PDS, the buy/sell swap is 0.15%, but fund documents from 31 August 2016 state that it is 0.05%. Supervised has a variable buy/sell spread dependent on market conditions, so check with the fund for up to date information. The management fee is higher than either Henderson or Pimco at 1%.

The Supervised fund is exposed to an international market, with nearly 25% of holdings in international fixed interest securities. Morningstar rates the fund at 5 stars overall and has a detailed analysis available on their site.

The fund managers consider their strategy to be one of “conservative opportunism”: they have a specific strategy investing in loan pools in developed economies. This exposes the fund to exchange rate risk, as well as interest rate, market and other risks borne by the Australian focused funds we have considered previously. It also allows the fund the opportunity to seek returns in other favourable markets. Fund documents at 25/09/16 indicate that a three year return is currently 5.75% and a five year return is 7.70%.

This fund has a different composition to either the Pimco or Henderson funds. According to a fund presentation, the fund was made up of 37.4% of investment grade holdings, with the remaining being sub-investment grade or unrated. Compared to Henderson and Pimco, which hold cash and fixed securities, the fund may have a higher yield, but is more exposed to risk the risks of unrated investments.

According to the Henderson Australian Fixed Interest Fund monthly report of August 2016 (available here), over 50% of that fund’s assets were rated AAA. The Pimco Wholesale Australian Bond Fund is holding 62% in AAA securities and less than 1% in sub-investment grade as at September 2016 (see here).

This is not to suggest that one fund is necessarily better than another: they are different and have different strategies. How each could fits into your investment portfolio will be an individual decision.

It should be noted that the fund’s benchmark is different to the Bloomberg Ausbond 0+Year index that the Pimco and Henderson bond funds are benchmarked to. The chart below shows the differences between the two benchmarks. This has consequences for the way each fund’s investment strategy success is reported. The Supervised fund may be outperforming its benchmark more consistently, but this benchmark is in fact lower at some time horizons. This relationship between benchmarks is not necessarily static and may change with both economic and market forces: interest rate increases may push the bank bill index higher, bond price falls may push the Ausbond index lower. This is something to keep in mind when assessing funds.

supervised-global-income-fund-chart-1

Data: Supervised Investments, InvestSmart. Chart: The Constant Investor.

The benchmark is only of minor importance compared to returns with competing funds. The chart below gives the advertised returns for Henderson Australian Fixed Interest Bond Fund, Pimco Australian Bond Fund and the Supervised Global Income fund over a number of different time horizons.

supervised-global-income-fund-chart-2

Data: Investsmart here and here, Supervised Investments here. Chart: The Constant Investor

At very short time horizons (sub 1 year), the three funds have only negligible differences in return. At the short time horizons of 1-3 years both the Henderson and Pimco funds outperform the Supervised fund, though at the 5 year horizon, currently the Supervised fund outperforms both.