Equity markets got you nervous? Daintree’s disciplined approach offers calm

Please note, this interview was filmed Tuesday, 4 November 2025

With all the excitement around equities of late, it’s easy to forget the other parts of your portfolio. But they deserve attention and, depending on how things play out over the rest of the year, might need some sooner rather than later.

As JFK said, “The best time to repair the roof is when the sun is shining.”

So, it might be worth turning your attention to the fixed income sleeve of your portfolio. With that in mind, I sat down with Justin Tyler, Co-Founder and Director at Daintree Capital, to understand how he is seeing markets, and the process that has led both the Core Income and High Income strategies of Daintree to outperform their benchmarks over 1, 3 and 5-year periods.

As Tyler explains, that performance hasn’t come from stretching for yield or taking excessive risk:

“People have way too much interest rate risk in their portfolios. We don’t want to join that particular party.”

Balancing growth and inflation risks

For Daintree, managing the trade-off between growth and inflation remains central to portfolio positioning.

 “This trade-off between growth and inflation is something that markets are really concerned about at the moment,” Tyler says. 

“For us, inflation is the near-term risk. We’ve all seen what’s happened with the recent inflation data. However, we think that policy makers will do what they say they’re going to do, and that adjustment will potentially push growth a little lower going into next year.”

He describes Daintree’s approach as one of sequencing; preparing for both scenarios rather than making a binary call. “It’s just a matter of having a portfolio in place that can deal with both of those,” he adds.

Finding value close to home

Tyler argues that, despite tighter spreads, the Australian credit market remains an attractive hunting ground. 

“It’s not unusual for credit spreads in Australia to actually be better value than offshore,” he says. “All-in yields are around 50 or 100 basis points higher after currency hedging, so that makes it a happy hunting ground.”

While the firm will consider offshore opportunities when global spreads widen, Daintree’s preference is currently for domestic exposure. “Most of our portfolio is in Australian risk,” Tyler says. “If that changes, we can move, but for now Australia is where we’re mostly investing.”

Insurance and portfolio defence

When it comes to managing risk, Daintree balances reacting to stimuli with a pro-active approach - preparation for various scenarios ahead of time. Fixed Income is much more about avoiding large losses than positioning for large gains, and this means that building defence into a fixed income portfolio is very important. “There are the risks you can foresee and those that you can’t,” Tyler explains. When a risk is visible it is important to be identify potential outcomes and exit a position quickly if this is called for.

When thinking about unforeseeable risks, a form of protection in Daintree portfolios is explicit insurance. Daintree spends a small amount of premium each year buying equity put options across its funds. "if there's another COVID, you get eight to ten times your premium," he says. "That's one form of insurance."

Beyond that, the firm focuses on flexibility and liquidity. “If we become worried about anything in particular, we can move up the capital stack or take higher-rated paper. Going into COVID, we increased liquidity to 50–60% of assets. We can move quite strongly when the circumstances demand it.”

Why benchmarks don’t cut it

Tyler is unapologetic in his view that fixed income benchmarks are flawed. “Fixed income benchmarks we don’t like, particularly in credit,” he says. 

“Most of them are capitalisation-weighted. That means you’re investing more in the issuers that have more bonds outstanding: the exact opposite of what you should be doing.”

He adds that traditional benchmarks embed far too much duration risk. “They usually have five, six, seven years of interest rate risk. We saw in 2022 what can happen when that goes wrong.”

Instead, Daintree focuses on outcomes that investors actually care about: low volatility and consistent income. 

“Typically, what investors want from fixed income is an income stream with low volatility. So that’s how we’ve set up our portfolio construction, to deliver that income with as little volatility as possible.”

Risk, resilience and opportunity

Asked what keeps him awake at night, Tyler points to sustained stress rather than sudden shocks. “It’s not so much the unknown unknowns - you can’t pick them,” he says. “But when stress carries on for a long period of time, that’s what we’re concerned about. It’s about ensuring your portfolio is as resilient as possible. 

"Can you raise liquidity quickly? Do you have the instruments at your disposal to orient the portfolio? Those tools and flexibility are really, really important", says Tyler.

On the opportunity front, he says risk premia are compressed, but all-in yields are still high relative to recent history. This widens the opportunity set for investors in multi-sector portfolios, who can increase defensiveness without giving up too much expected return. Increasingly, “we’re seeing people take money off the table in equities and move to fixed income,” he notes.

Australian structured credit is one area of the market where expected returns still look attractive. “We like structured credit. You still get a decent pickup over bank paper, and some warehousing deals offer extra spread.”

Ultimately, Daintree’s stance remains pragmatic. “You don’t want to chase returns too hard when credit spreads are tight,” he says. 

Looking ahead

Over the next 12 to 18 months, the team is keeping a close eye on how major events and data releases impact markets, and Tyler emphasises that true risk management requires imagination. “You’re not going to foresee everything that comes your way,” he concludes.

“It’s about being creative in your thinking to figure out what might come your way, and ensuring the portfolio is set up appropriately to deal with that.”

Find out more about Daintree here. 

Managed Fund

Daintree High Income Trust

Australian Fixed Income

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Managed Fund

Daintree Core Income Trust

Australian Fixed Income

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