Axonic Investor Update Q1 2023 Replay


Axonic Capital’s Q1 2023 investor call highlights the performance of its mutual fund, the Axonic Strategic Income Fund (AXSIX), which returned +1.96% net, underperforming the Bloomberg Aggregate Index by 1.5%. Despite this, the Fund’s three-year total return of +3.98% net outperformed the index, which returned -2.77%.

Axonic’s Director of Research and head of macro strategy, Peter Cecchini, discussed the macroeconomic environment and its impact on the portfolio. Cecchini noted that the long-term secular downtrend in rates has ended, and the recent equity rally is unlikely to persist. He suggested that the recent change in the rates regime will come with consequences, and the tightening of lending standards will affect the general economic outlook. Cecchini predicted that the economy would follow the fall of loan growth, and new bull markets for risk won’t start until there is a re-normalization of the treasury curve. He also suggested that the Fed would hike once more before being forced to cut later in the year, as the economy slows. This would benefit Axonic as loan growth falls, creating opportunities to buy loans in the secondary market at discounts.

Clay DeGiacinto, Axonic’s Managing Partner and CIO, reported that most fixed-income and credit funds were positive in Q1, with AXSIX up +1.96% net. The Fund experienced positive inflows at $1.43B, with $130M coming in since the beginning of the year. DeGiacinto noted that structured credit assets provide diversification from traditional fixed income, and many of the assets Axonic invests in are well-suited to provide a consistent rate of return, not only in inflationary environments. The portfolio is diversified, focusing on identifying the best opportunities in respective markets, with a higher-yielding, lower duration exposure across asset-backed securities.

Matthew Weinstein, Axonic’s Partner and Head of Credit, talked about the Fund’s commercial real estate exposure and how the firm is positioned to navigate this market. He noted that Axonic is mindful of the headlines surrounding commercial real estate and the implications for the lending market. He relays that they have been positioned for markets like this for years. Multifamily has always been Axonic’s highest commercial real estate exposure, with the Fund currently averaging 15% exposure. Weinstein expressed they are well-positioned in their existing book to take advantage of opportunities that lie ahead, as the market continues to experience a torrent of scary headlines, while misunderstanding the complexities of the Commercial Mortgage-Backed Securities (CMBS) sector.

If you have any questions about the Fund’s performance or asset allocation strategy, please do not hesitate to contact us.

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