Performance Commentary | November 2022
For November 2022, the AFL-CIO Housing Investment Trust (HIT) had a gross return of 3.56% and a net return of 3.52%. Its benchmark, the Bloomberg U.S. Aggregate Bond Index* (Bloomberg Aggregate or Benchmark), reported a return of 3.68% for the month.
The performance data quoted represents past performance and is no guarantee of future results. Periods over one year are annualized. Investment results and principal value will fluctuate so that units in the HIT, when redeemed, November be worth more or less than the original cost. The HIT’s current performance data may be lower or higher than the performance data quoted. Performance data current to the most recent month-end is available from the HIT’s website at www.aflcio-hit.com. Gross performance figures do not reflect the deduction of HIT expenses. Net performance figures reflect the deduction of HIT expenses and are the performance returns that HIT’s investors obtain. Information about HIT expenses can be found on page 1 of the HIT’s current prospectus.
Positive contributions to HIT’s relative performance vs. Bloomberg Aggregate* included:
| ● | The portfolio’s ongoing yield advantage over the Bloomberg Aggregate. As of November 30, 2022, the HIT had a yield advantage of 39 basis points (bps). |
| ● | The portfolio’s underweight to Treasuries, the worst performing major asset class in the Benchmark on both a total and excess return basis during November. The HIT portfolio had a 3.1% allocation to the sector versus 40.6% in the Bloomberg Aggregate at month end. |
| ● | Performance by agency multifamily mortgage-backed securities (MBS) in the HIT’s portfolio as nominal spreads to Treasuries tightened. FHA/Ginnie Mae permanent and construction/permanent loan certificates tightened to Treasuries by approximately 4 and 9 bps, respectively. Spreads on longer maturity Fannie Mae DUS security structures tightened, with the benchmark 10/9.5s tightening by approximately 19 bps. The HIT portfolio had an allocation of 5.4%, 11.7% and 21.4% to CLCs, PLCs and fixed-rate single-asset Fannie Mae DUS securities, respectively at the end of the month. There were no such securities in the Bloomberg Aggregate. |
| 1227 25TH STREET, NW | SUITE 500 | WASHINGTON, DC 20037 | P: 202-331-8055 | AFLCIO-HIT.COM |
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November 2022 Portfolio Commentary |
| ● | The portfolio’s overweight to spread assets as swap spreads tightened during November across most maturities. The 2-, 5-, 7-, and 10-year spreads tightened by approximately 6, 3, 7, and 8 bps, respectively. The HIT had 94.8% in spread assets to end the month, compared to 59.4% in the Benchmark. |
| ● | The portfolio’s overweight to adjustable-rate securities as rates continue to rise. The HIT had an allocation of 13.6% to adjustable-rate securities while the benchmark only has fixed rate securities. |
Negative impacts to HIT’s relative performance vs. Bloomberg Aggregate* included:
| ● | The portfolio’s underweight to corporate bonds, the best performing major sector on both an excess return and total return basis, posting an excess return of 211 bps and total return of 518 bps for the month. The HIT does not invest in corporate bonds, whereas the sector comprised 24.4% of the Benchmark* as of November 30, 2022. |
| ● | The portfolio’s underweight to agency-insured, fixed-rate single family MBS, the second best performing major asset class in the Benchmark on both an excess and total return basis. The portfolio was underweight the sector with a 13.8% allocation compared to 27.6% in the Bloomberg Aggregate*. |
| ● | The portfolio’s overweight to the highest credit quality sector (i.e. AAA-rated) of the investment grade universe, whose excess returns were the lowest among the four credit ratings buckets (AAA, AA, A and BBB) of the Bloomberg Aggregate. Those returns were 53, 127, 198, and 231 bps, respectively. Approximately 89.2% of the HIT portfolio was either AAA-rated or carried a government or GSE guarantee, compared to 73.1% for the Bloomberg Aggregate*. |
| ● | The portfolio’s short relative duration versus the Benchmark as rates rallied across the curve. The 2-, 5-, 7-, 10-, and 30-year rates decreased by approximately 17, 49, 47, 44, and 43 bps, respectively. |
* Information provided by Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively “Bloomberg”). Bloomberg or Bloomberg’s licensors own all proprietary rights in the Bloomberg Indices. Bloomberg does not approve or endorse this material or guarantee the accuracy or completeness of any information herein, nor does Bloomberg make any warranty, express or implied, as to the results to be obtained therefrom, and, to the maximum extent allowed by law, Bloomberg shall not have any liability or responsibility for injury or damages arising in connection therewith.
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| November 2022 Portfolio Commentary |
Market Data
November 2022 Bond Sector Performance
| Sector | Absolute
Return |
Excess
Return (bps) |
Modified
Adjusted Duration |
| U.S. Treasuries | 2.68% | 0 | 6.16 |
| Agencies | 1.62% | 18 | 3.47 |
| Single family agency MBS (RMBS) | 4.08% | 135 | 5.75 |
| Corporates | 5.18% | 211 | 7.22 |
| Commercial MBS (CMBS) | 2.63% | 52 | 4.66 |
| Asset-backed securities (ABS) | 0.99% | -8 | 2.89 |
| Source: Bloomberg L.P. |
Change in Treasury Yields
| Maturity | 10/31/22 | 11/30/22 | Change |
| 1 Month | 3.597% | 3.922% | 0.325% |
| 3 Month | 4.056% | 4.320% | 0.264% |
| 6 Month | 4.536% | 4.650% | 0.114% |
| 1 Year | 4.602% | 4.686% | 0.084% |
| 2 Year | 4.482% | 4.310% | -0.172% |
| 3 Year | 4.440% | 4.049% | -0.391% |
| 5 Year | 4.228% | 3.737% | -0.492% |
| 7 Year | 4.143% | 3.676% | -0.467% |
| 10 Year | 4.048% | 3.605% | -0.442% |
| 20 Year | 4.404% | 3.927% | -0.477% |
| 30 Year | 4.164% | 3.736% | -0.428% |
| Source: Bloomberg L.P. | |||
Investors should consider the HIT’s investment objectives, risks and expenses carefully before investing. Investors November view the HIT’s current prospectus, which contains more complete information, on its website at www.aflcio-hit.com and November obtain a copy from the HIT by calling the Marketing and Investor Relations Department collect at 202-331-8055. Investors should read the current prospectus carefully before investing. The Bloomberg Aggregate is an unmanaged index and is not available for direct investment, although certain funds attempt to replicate this index. Returns for the Bloomberg Aggregate would be lower if they reflected the actual trading costs or expenses associated with management of an actual portfolio.
This document contains forecasts, estimates, opinions, and/or other information that is subjective. Statements concerning economic, financial, or market trends are based on current conditions, which will fluctuate. There is no guarantee that such statements will be applicable under all market conditions, especially during periods of downturn. It should not be considered as investment advice or a recommendation of any kind. The calculations of the HIT yield herein represent widely accepted portfolio characteristics information based on coupon rate, current price and, for yield to worst, certain prepayment assumptions, and are not current yield or other performance data as defined by the SEC in Rule 482.
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| November 2022 Portfolio Commentary |
Portfolio Data as of November 30, 2022
| Net Assets | $6,062.37 million | ||||
| Portfolio Effective Duration | 6.04 years | Convexity | 0.247 | ||
| Portfolio Average Coupon | 3.02% | Maturity | 10.65 years | ||
| Portfolio Yield to Worst1 | 4.89% | Portfolio Current Yield1 | 3.38% | ||
| Number of Holdings | 928 | Average Price2 | 88.12 | ||
Sector Allocations: 3
| Multifamily Investments | 79.74% |
| Agency Single-Family MBS | 14.22% |
| U.S. Treasury | 3.11% |
| AAA Private-Label CMBS | 0.88% |
| Cash & Short-Term Securities | 2.05% |
| CMBS – Agency Multifamily** | 67.05% |
| Agency Single-Family MBS | 14.22% |
| U.S. Treasury Notes/Bonds | 3.11% |
| State Housing Permanent Bonds | 4.54% |
| State Housing Construction Bonds | 3.28% |
| Direct Construction Loans | 5.75% |
| Cash & Short-Term Securities | 2.05% |
**Includes multifamily MBS (58.27%), MF Construction MBS (7.9%), and AAA Private-Label CMBS (0.88%).
Quality Distribution: 3
| U.S. Government or Agency | 84.45% |
| AAA | 2.68% |
| AA | 5.07% |
| A | 0.00% |
| Not Rated | 5.75% |
| Cash | 2.05% |
Portfolio
Duration Distribution,
by Percentage in Each Category: 3
| Cash | 2.05% | 5-5.99 years | 16.95% |
| 0-0.99 years | 17.06% | 6-6.99 years | 13.16% |
| 1-1.99 years | 3.34% | 7-7.99 years | 12.58% |
| 2-2.99 years | 2.99% | 8-8.99 years | 5.25% |
| 3-3.99 years | 6.84% | 9-9.99 years | 0.89% |
| 4-4.99 years | 7.01% | Over 10 years | 11.87% |
Maturity Distribution
(based on average life):
| 0 | – 1 year | 5.20% | |
| 1 | – 2.99 years | 8.19% | |
| 3 | – 4.99 years | 9.82% | |
| 5 | – 6.99 years | 20.26% | |
| 7 | – 9.99 years | 32.45% | |
| 10 – 19.99 years | 19.56% | ||
| Greater than 20 years | 4.52% | ||
1 The calculations of the HIT yield herein represent widely accepted portfolio characteristics information based on coupon rate, current price and, for yield to worst, certain prepayment assumptions, and are not current yield or other performance data as defined by the SEC in Rule 482.
2 Portfolio market value weighted by current face.
3 Based on value of total investments and includes unfunded commitments but does not include U.S. treasury futures contracts.
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