“There hasn’t been a better time to be in fixed income”: Yarra’s Phil Strano

This interview was filmed on Wednesday 18 June 2025. 

The Yarra Higher Income Fund is “quite dear to my heart,” says portfolio manager Phil Strano, who has spent his career finding the best opportunities in Australian credit.

And that commitment is paying off, with Strano arguing the market has never offered more to investors than it does right now.

“Running yields are at a level we haven't really seen since the GFC and investors have a unique ability to earn equity-style, long-term average returns without necessarily taking the risk or enduring the volatility associated with equity markets.”

Strano and Yarra Capital Management pride themselves on their multi-sector approach.

“The Higher Income Fund plays an opportunity set of roughly about $1.8 trillion: much, much larger than most other credit funds that are siloed in Australian credit," says Strano. 

What that means for investors is that the fixed income team is “focusing on risk-adjusted returns, being able to provide genuine liquidity to investors, and picking the eyes out of the market, whether that be across public or private in appropriate allocations means that you tend to perform or generate better returns for the risk through a cycle.”

“We have a unique ability to mesh the best bits of private and public markets to generate an optimal blend of risk return and liquidity for investors focusing purely on risk-adjusted returns.

So only buying any assets that kind of make sense and compensating us for the risk that we're taking.”

Right now, that means returns to rival historical equity returns.

“We're pretty comfortable that, certainly in 2025, we're well on track to deliver circa 7-8%,” says Strano.

That’s in line with their net return hurdle of the cash rate plus 335 basis points.

“The beauty of this market right now is that over a 12-month period is incredibly improbable that you'll see [negative returns] purely because running yields are so high, but also our ability to limit drawdowns through our strategic use of interest rate duration when it makes sense to do so," says Strano. 

Make sure to watch the full video above to get Strano's full view on the opportunities in fixed income.