Elstree Investment Management Limited

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Australian Enhanced Income Fund NAV for September 2017


The Fund’s NAV of a unit at the close of business on 29 September 2017 was $6.14 per unit. This compares with the NAV of a unit at the close of business on 31 August 2017 of $6.114 per unit. The change in NAV over the period from 31 August 2017 to the close of business on 29 September 2017 represents a return of 0.43%. This compares with the UBS Bank Bill Index rate of return over the same period of 0.15%
After the cash payment of $0.0875 cents per unit to unit holders registered at the close of business on 29 September the Fund's ex-distribution NAV of a unit was $6.0525.
The franking benefit for September 2017 was estimated to be 0.23%.

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Elstree Enhanced Income Fund November 2017 Performance Review


The Elstree Enhanced Income Fund’s Net Asset Value (NAV) at the close of business on 30 November 2017 was $0.7990 per unit. This compares with the NAV of a unit on 31 October 2017 of $0.7967. The change in NAV over the period 31 October 2017 to the close of business on 30 November 2017 represents a return of 0.29%. This compares with the All Ordinaries Accumulation Index and the UBS All Maturities Bond Index returns of 1.91% and 0.87% respectively.

The Fund’s over the year net return (after fees but before adjusting for franking credits) decreased to 9.44% from 9.90% previously.

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Australian Enhanced Income Fund. Change to minimum cash distribution. May 23, 2016


Due to the recent reduction in the official cash rate by the RBA the Responsible Entity (RE) has determined that commencing from the June quarter 2016 the Fund will pay a minimum cash distribution of $0.35 per annum per unit. This compares with the previous distribution of $0.40 per annum per unit.

To read the ASX release in full Click here

Research note: May 2016 'Bad Debt Cycles. Should we be concerned?'


Australian bank share prices have fallen significantly over the last 12 months on a spate of regulator induced equity capital raisings and more recently on a sanguine economic outlook and the prospect of increasing bad debt levels. As an investor in hybrid capital instruments it is the latter that has piqued our interest.

The talk has been that mortgage stress originating from an overheated residential property market will be harbinger of an increase in bad debts. We sought out data from the two most recent bad debt cycles being the 1990’s recession and the GFC, to gauge the extent to which we should be concerned. Our findings were uneventful to say the least as residential mortgage stress was a non issue in both the 1990's recession and the GFC.

That is not to say we dismiss mortgage stress as being a catalyst for an increase in bad debts because we don’t. We simply provide supportive evidence to suggest that it is unlikely to bring about the undoing of a major Australian bank.

Without question the banks are well equipped now to handle a downturn. They are significantly better capitalised and have a more diverse asset base with reduced exposure to business and commercial borrowers where much of the stress emanated from in the 1990’s.

As holders of hybrid capital instruments senior to equity we are confident of the viability of the Australian banks.

To read our thoughts in more detail we invite you to click on the link below.
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Research note: 'Why an allocation to floating rate credit makes sense'.


To download a copy of our latest research note entitled 'Why an allocation to floating rate credit (aka hybrids) makes sense Click Here and follow the prompts.

In our note we examine the correlation between equity and hybrid sector returns and fixed rate bond and hybrid sector returns. We found, not surprisingly, that hybrid returns were uncorrelated to both. While hybrid and fixed rate bond returns are uncorrelated the returns are even more uncorrelated when fixed rate bonds experience a negative return period. This is particularly pertinent if you expect bond yields to rise (prices to fall) from their current levels of just below 4%.

The correlation between equities and hybrids is not as clear cut. The correlation to equities is low except during event shocks such as a GFC type event when the correlation is extremely high. From the equity portfolio perspective the benefit of making an allocation to hybrids is dependent upon your view of the frequency of major event shocks such as the GFC.

Not only does making an allocation to floating rate credit make sense from the risk reduction perspective at the total portfolio level but as a standalone investment it makes sense too. In risk adjusted terms it is extremely difficult to see how Australian floating rate credit can under-perform equities. In view of the current margins and the high term structure of interest rates we think Australian floating rate credit has the potential to out-perform equities not just in risk adjusted terms but in absolute terms as well.

Crown Notes - a 2nd postsript (July 2016)


It was only a month or so ago that we wrote a piece on the Crown demerger and the implication for the 2 outstanding pieces of sub debt, CWNHA and CWNHB. In our piece we said that we were not surprised by the demerger and the resultant revaluation of the Notes.

We continue to believe the Notes are undervalued.

We base our view on the fact that there is an inconsistency between the pricing of senior debt issued by Crown and the Notes. At a spread margin of greater than 8% (based on the closing price of $85 on July 13) the CWNHB appear mispriced relative to senior debt issued by Crown at circa 2.1%. Perhaps the market is not as sanguine about Crown’s corporate message and the maintenance of an investment grade credit rating as we are.

In our piece we explain our thinking. To read our thoughts in more detail please
Click here

Research note: 'Measuring tail risk'


To download a copy of our latest research note on quantifying the tail risk of credit protfolios click on the Research Contents page and follow the prompts.

The background is that we wanted to see how the Australian hybrid market would behave if an event shock of the magnitude of the GFC were to be repeated. What we found was that due to structural changes in volatility the market would behave quite differently. We attribute this to the improved credit quality of the sector since the GFC and a raft of factors relating to the deinstitutionalisation, broadening and deleveraging of the investor base.

We were one of the first fund managers to use value at risk or VaR to measure market risk. It is a similar methodology we use to calculate the tail risk of our portfolios.

Elstree on youtube


To follow Campbell Dawson's thoughts on the lastest corporate hybrid security issuance on youtube click on the Research Contents page and follow the prompts.

Elstree in the press


To view our thoughts on global bond market liquidity in an article entitled 'The bond market's liquidity problem' in the the Australian Financial Review (AFR) on Saturday 13 June 2015 click on the link below.

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Latest research note: The luck of the Irish.


We read a note recently from the highly respected JCP Investment Partners. The note suggested that there were parallels to be drawn between the Irish property market, which crashed in 2007 and the Australian property market.

We too are eyeing the Australian property market with a degree of caution and thought we would investigate JCP Investment Partner's argument that the Irish property crash of 2007 could provide a 'road map' for Australia.

We invite you to click on the link below to read our thoughts in more detail.

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Research note: May 2015 - 'Bank capital raisings: What's it all about?'


In view of the recent heavy sell off in bank shares we thought it would be timely to comment on the reasons for the sell off and the ramifications for bank hybrid capital.

The selloff in bank shares is the direct result of the prospect that banks will be required to hold more equity capital as a consequence of the regulator determining a minimum risk weighting applied to housing. While ordinary equity has sold off heavily over the last month bank hybrid capital instruments remain unaffected.

We think this makes sense because the addition of more equity capital will simply make hybrid capital more default and conversion remote than it was previously.

Finally, we couldn’t resist passing comment on some of the disparaging commentaries written lately about hybrids. Clearly, the authors have failed to grasp some of the basic concepts. Let you be the judge.

We welcome and comments you may have.

To read the note simply click on the link below.
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Research note March 2014: Welcome to planet Japan


In summary our latest research note entitled “Welcome to planet Japan” looks at what the developed world might look like if it continues down the Japanese path of zero interest rates, weak investment and output growth and benign price pressures.

Coined by Larry Summers as “secular stagnation” the outcome is not a particularly bright one for equity markets. If the Japanese experience is any indication the outcome is somewhat brighter for credit markets as spreads contract amid a decline in default rates.

To read the note simply click on the link below.
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Our Funds

Australian Enhanced Income Fund NAV (ASX Code AYF)

Latest: 31 October 2017 $6.085
Previous 30 September 2017 $6.0525 (Ex-distribution).

Find Out More

To view the latest Monthly Review Click here


Elstree Enhanced Income Fund NAV

Latest: 12 November 2017 $0.7996.
Previous: 5 December 2017 $0.7987.

Previous month end: 30 November 2017 $0.7990

Find Out More

To view the latest Monthly Review Click here


Latest Share Price AYF

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Latest Fact Sheets

Elstree Enhanced Income Fund. To view the latest Fact Sheet Click here

Australian Enhanced Income Fund. To view the latest Fact Sheet Click here

Latest Press. November 2016. Elstree in the ASX

To view the article produced by the ASX Click here

Crown Notes - a 2nd postscript (July 2016)


It was only a month or so ago that we wrote a piece on the Crown demerger and the implication for the 2 outstanding pieces of sub debt, CWNHA and CWNHB. In our piece we said that we were not surprised by the demerger and the resultant revaluation of the Notes.

We continue to believe the Notes are undervalued.

We base our view on the fact that there is an inconsistency between the pricing of senior debt issued by Crown and the Notes. At a spread margin of greater than 8% (based on the closing price of $85 on July 13) the CWNHB appears mispriced relative to senior debt issued by Crown at circa 2.1%. Perhaps the market is not as sanguine about Crown’s corporate message and the maintenance of an investment grade credit rating as we are.

In our piece we explain our thinking.

To view our thoughts in more detail Click here

Deutsche Bank AG. Talk of a 'bail out or bail in'. Should we be concerned?


There has been a lot of commentary recently about Deutsche Bank in relation to the US Justice Department’s US$14 billion fine imposed on the bank for its activities in the lead up to the GFC. Concerns about the viability of Deutsche Bank and talk of the possibility of a ‘bail in or a bail out’ have been doing the rounds for a while now.

We thought we would add our 2 Euro’s worth!

To read our thoughts in more detail please
Click here