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 1300 366 100

06 January 2009
Monthly Income

Monthly Income Fund Update

September Quarter 2007


Download the Monthly Income Fund Update

Download the Funds Performance report


The performance shown in the Fund Update is the gross performance of the fund. To view the net performance of the fund or of the different unit classes of the fund download the Fund Performance Report or visit Fund Performance.

Gross performance returns and benchmark performance shown do not include expenses, fees or tax. Net performance returns are prepared on an exit-to-exit fee basis which includes all ongoing fees and expenses.


Market outlook

  • Credit markets began the month of September with a weak tone due to ongoing dislocation in financial markets globally.
  • The US sub-prime mortgage market woes caused the interbank market to seize up due to fear and mistrust amongst the banks as to who was holding US sub-prime mortgage exposures.
  • Central banks globally responded by implementing a range of measures to encourage liquidity in the interbank market including; reducing their lending rates, widening the acceptable forms of collateral and encouraging banks to borrow from them.
  • Mid September the US Federal Reserve cut the Federal Funds rate by a larger than expected 50 basis points which served to restore some semblance of liquidity to the money markets.
  • In response to the cut of the Federal Funds rate, credit spreads of financial institutions, which had been the focus of market participant concerns, narrowed somewhat toward the end of the month after being under sustained upward pressure in the first half of September.
  • The Fund’s credit duration dropped to 5.2 years from 5.6 years.
  • The running yield closed the month broadly unchanged at 131 basis points from 130 basis points at the end of August.
 
Composition may not total 100% due to rounding.


  • We believe credit markets are likely to continue to be volatile in the short term however differentiation between borrowers is expected to emerge, particularly between those that are exposed to the US sub-prime mortgage market and those that are not.
  • At this stage our core view is that the broader credit market is fundamentally sound supported by the benign economic backdrop, strong corporate profitability and robust balance sheets. We see the repricing of risk as a result of the forced deleveraging of positions rather than any fundamental weakness.
  • We continue to be comfortable with the credit integrity of the holdings in the Fund and continue to manage it accordingly to take advantage of the opportunities to buy cheap assets in this environment.
  • Fund sector allocation will continue to focus on global financial issuers (money centre banks in particular) in the wake of recent supportive actions from the Fed and other central banks, and given their unique regulatory status.

Performance review

  • The Fund managed over $1.5 billion in asset at the end of September.
  • The Fund had an overweight exposure to large financial institutions due to their size and importance to their economies which caused it to underperform in the early part of the month as their credit spreads widened.
  • These exposures performed strongly since the cut in the Federal Funds rate and the Fund outperformed its benchmark by 33 basis points in September, reflecting the sharp outward movement in spreads in the latter half of the month.
 
Gross returns
Benchmark returns
Out-performance*
1 Month
0.90%
0.57%
0.33%
3 Month
-0.85%
1.64%
-2.49%
6 Month
1.34%
3.28%
-1.93%
1 Year
6.56%
6.54%
0.02%
2 Year (pa)
6.52%
6.21%
0.31%
3 Year (pa)
6.80%
6.03%
0.77%
5 Year (pa)
7.00%
5.69%
1.30%
Past performance is no indication of future performance.
*Shows the difference between Gross return and Benchmark return.
The performance figures assume the reinvestment of all income and are calculated gross of fees and charges. Over the later part of 2002 and early 2003 the Fund’s holdings were diversified to include holdings in foreign securities. From 1 March 2003 the Fund was considered to be invested according to its current investment strategy. Rounding used in the presentation of returns may result in minor variations.

Monthly Income Fund Portfolio as at 30/9/2007

Industry exposures
Asset Backed
1.53%
  
Insurance
16.52%
Automobile & Components
0.71%
Materials
1.09%
Banks
51.73%
Media
1.36%
Capital Goods
0.35%
Real Estate – Ex Listed Property
0.51%
Commercial Mortgage Backed
0.35%
Real Estate – Listed Property
1.21%
Commercial Services & Support
0.33%
Residential Mortgage Backed
3.85%
Consumer Services
0.29%
Retailing
0.28%
Diversified Financials
5.83%
Telecommunication Services
2.98%
Energy
0.22%
Transportation
0.68%
Food Beverage & Tobacco
0.43%
Liquidity
9.74%

Investment objective

The objective of the Fund is to generate consistent monthly income significantly in excess of that available from short-term money market securities and cash rates. The Fund aims to achieve 1.70% p.a. in excess of the UBS Australia Bank Bill Index before fees over the medium term (3 years).


Fund strategy

The Fund invests predominantly in longer-dated, high-quality debt securities sourced from around the world. All the Fund’s exposures are converted to $A floating rates and are managed by our local fixed income team supported by our credit specialists from around the world.


Designed for investors who…

  • Are looking to receive high, consistent monthly income from their non-transactional cash balances.
  • Might be considering investing in mortgage or bond funds.
BlackRock Investment Management (Australia) Limited ABN 13 006 165 975 AFS Licence Number 230523 RSE License No L0000116
The Merrill Lynch name and logo are trade marks of, and used under license from, Merrill Lynch & Co., Inc.