The eInvest Income Maximiser Fund (‘the Fund’ or Ticker: EMAX)

The eInvest Income Maximiser Fund (‘the Fund’ or Ticker: EMAX) is an Exchange Traded
Fund (ETF) that is expected to list on 22 November 2019. It is an absolute return, global
investment grade traded debt mandate managed by Daintree Capital Management Pty
Limited (the ‘Manager’ or ‘Daintree’), a Sydney based boutique fixed income specialist
founded in 2017 as a 50/50 joint venture (JV) with PVM Capital Partners Ltd (Perennial).
The Fund targets an annualised return of RBA Cash basis points (bps) after fees
with consistent monthly income while trying to minimize volatility, negative performance
months and drawdowns. EMAX will invest in underlying units of the Daintree High Income
Trust, an unlisted unit trust that commenced on 1 November 2018. The bottom up, top down
investment strategy is flexible, being benchmark unaware and market driven opportunistic,
as the Manager seeks the most attractive relative value opportunities and to do so with the
lowest degree of credit, duration, and illiquidity risk to achieve the stated returns target.
Being absolute returns, there is a strong focus on downside protection. The investment
strategy rests on a philosophy that with yields being at historic lows and secular changes
in the traded debt markets heightening volatility and tail risks, it is no longer prudent for an
investment manager to simply be long credit risk, duration or the illiquidity premium. The
portfolio comprises two components - the ‘Core Portfolio’ and the ‘Overlay Portfolio’, with 75-
80% of returns expected to derive from the former, and the residual from the latter. Through
both, the intention is to construct a portfolio that generates absolute returns by combining
active credit management, a diversified overlay strategy and conservative risk management.
While Daintree is relatively newly formed, the founding partners, Mark Mitchell and Justin
Tyler, are experienced fixed income industry veterans.
INVESTOR SUITABILITY
EMAX is generally on average expected to be a 75% investment grade / 25% sub-investment
grade (largely BB rated securities) portfolio, with a very strong focus on downside protection.
While the Daintree High Income Trust has only a 12 month track record to 31 October
2019, the strategy has generated an annualised total net return of 6.32%, comprising an
approximate what we would expect to be around a 4% distribution yield. This performance
to date is very much in-line with the Manager’s longer term expectations of the strategy, but
encouragingly the performance to date has been generated during a market period when
credit spreads have presented a headwind. With the moderate degree of credit risk, comes
the risk of periods of negative monthly performance, with the Manager’s expectation that
such monthly periods may occur around three out of every 12 months. That said, with the
ability to manage monthly distribution levels during the course of each financial year, our
expectation is for a smooth and consistent monthly distribution flow.
RECOMMENDATION
IIR ascribes a “RECOMMENDED PLUS” rating to the Fund. Daintree, while having a short
track record as an entity, represents an experienced investment team led by its two industry
veteran portfolio managers (PMs), Mark Mitchell and Justin Tyler. While the boutique manager
may not have the resources of larger investment managers, the Manager plays to its relative
strengths and has developed internally robust processes and systems. IIR believes, in
particular, its ability to manage the ever increasing downside risks in the traded debt markets
sets it apart from many other comparable mandates available to domestic investors. We also
believe its flexible, market driven opportunistic and absolute returns investment strategy
is best suited to the current market environment, the key dynamics of which (low yields,
heighten volatility and tail risks, material long duration risk) IIR believes will persist for the
foreseeable future. In short, IIR believes EMAX represents a strong investment option for
investors seeking an elevated yield and who recognise that in doing so, there will be periods of negative monthly total returns performance.