The eInvest Core Income Fund (‘the Fund’ or Ticker: ECOR)

The eInvest Core Income Fund (‘the Fund’ or Ticker: ECOR) 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. ECOR will invest in underlying units of the Daintree Core Income Trust, an
unlisted unit trust that commenced on 1 July 2017. 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 85-90% 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
ECOR is designed as an enhanced cash, term deposit alternative, providing an enhanced
and consistent level of monthly income with a limited degree of capital appreciation upside
and a very strong focus on downside protection. IIR notes that over the Trust’s two year
track-record, the Manager’s risk-return objectives have been achieved, with the Trust having
generated an annualised net return of 206 and 299 basis points over the RBA Cash Rate
since inception and over the last 12-months to 31 October 2019, respectively (3.5% p.a. vs
2.1% p.a. Term Deposits vs 1.4% p.a RBA Cash Rate). These returns reflect the 15bps higher
fee in the Trust versus ECOR (60bps until 30 June 19 and then dropped to 50bps). During this
period, there have been no negative monthly periods, including during the investment grade
credit spread widening events from March to June 2018 and November and December 2018.
Monthly distributions have been smooth and consistent, generating income of 2.8% in its
first full year period. In a peer group analysis, the Fund has outperformed in every important
measure (returns, risk, negative months). IIR believes ECOR is a suitable enhanced TD
alternative, with the additional benefit of ECOR being effectively ‘at call’, i.e. daily liquidity.
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 ECOR represents a strong investment option for its
stated and intended use as an enhanced cash TD alternative.