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Old Mutual Elite Dollar Defensive Fund - News
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Old Mutual Elite Dollar Defensive Fund
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Fund
News
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Old Mutual Elite US$ Defensive comment - Dec 03
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Wednesday, 28 January 2004
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Fund Manager Comment
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| Elite US$ Defensive performed well over the month, returning 4.14% during December and 5.18% during the quarter. Global bond markets were in positive territory over the month, providing favourable conditions for the underlying managers. Yields remained largely stable after the sell-off experienced in July and August. There appears to be little risk in the immediate term that yields will rise very far across the board, given the news from the Federal Reserve that there were no imminent plans to change the level of interest rates.
Inflation will in all probability be a theme that dominates central bankers' agendas over the coming months, focusing in particular on how long monetary stimulus remains at current levels before signs of inflation begin to appear. US policymakers anticipate that it will be some time before we begin to see meaningful inflation, as the excess capacity that still exists in many areas should absorb the trend towards strong growth that we have seen in recent months.
In currency markets the dollar continues to depreciate against most major currencies, and the administration does not appear to be in any hurry to call a halt to the trend. Much of this is caused by the high and increasing borrowing requirements of central government in the US. If government borrowing continues to increase at the present rate, the Federal Reserve may be forced to raise interest rates, which may cause yields to rise sooner than the market currently expects.
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Old Mutual Elite US$ Defensive comment - Oct 03
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Wednesday, 26 November 2003
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Fund Manager Comment
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| Bond and currency markets became increasingly volatile over the course of October, with a particularly difficult time experienced in UK and European markets. There were strong indications that central banks are about to embark on a new cycle of interest-rate rises, with the Bank of England being the first to actually raise rates by a quarter point to 3.75% during the month.
US economic data is now indicating an economic recovery, probably stronger than initially thought. Some doubts still exist about its sustainability given the precarious labour market conditions. The US dollar appreciated slightly against an overbought euro. It depreciated strongly against the dollar block (commodity currencies seen as beneficiaries of economic recovery), Sterling and against the yen, on belief that the Japanese authorities have changed their currency policy and are now willing to accept a stronger currency.
The lack of inflation and the low interest rate environment should cap any significant rises in bond yields going forward, although there may be a mild up-trend that could lead to a rally next year.
European interest rates have been on hold since June. European bond markets had a bad month in October, losing more than 1.5%. Their move has been mainly affected by developments in US Treasuries so they outperformed in domestic terms. There have been some indications of improvement in the economic outlook and data on the recent past indicates that most of the European economies may be coming out of near recessionary conditions.
October was a poor month for the UK gilt market, registering a loss of 2.75% in local currency terms. Yields moved up across the curve, although the rise was less prominent towards the longer end of the curve, illustrating that the market is not becoming unduly worried about the outlook for inflation at present.
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Old Mutual Elite US$ Defensive comment - Sep 03
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Thursday, 13 November 2003
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Fund Manager Comment
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| Global bonds lost ground over July and August, correcting from previous overbought levels. The dollar Defensive portfolio performed strongly in September's rallying Treasury market, gaining 4.3% in dollar terms and bringing the portfolio into positive terms for the quarter. An element of this was due to dollar weakness.
Given the challenging times faced in Treasury markets in the early part of the quarter, one of the themes among underlying managers was a shift from government securities to corporate bonds. Funds that benefited from stronger performance in corporates were Allianz Dresdner High Income and Old Mutual Corporate Bond Fund.
As we move into the fourth quarter, some commentators are suggesting interest rate rises in the medium term. Current reflationary trends are likely to present challenging times for bond markets in the coming months, though policymakers will be mindful not to let yields rise too far and risk choking off the burgeoning economic recovery.
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Old Mutual Elite US$ Defensive comment - Aug 03
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Thursday, 18 September 2003
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Fund Manager Comment
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| Global Bonds lost a little more ground in August, after losing considerably more in July. The dollar Defensive portfolio slightly underperformed the sector over the month but is still comfortably ahead of the sector since launch.
With stronger economic data coming through the US dollar has performed strongly relative to both the euro and sterling gaining over 2% on the euro and over 1% against sterling. With the short end of the curve still discounting an increase in interest rates in the US, managers who were short duration and overweight the euro (as most of the managers are) suffered relative to the benchmark. Unfortunately this shortfall could not be made up with the allocation to asset backed and non-government securities.
In the global sector, the JP Morgan Euro hedged fund suffered as a result of the currencies fall of over 2% against the US dollar whereas the US dollar hedged version of the fund beat the benchmark. Old Mutual and Mellon suffered with their longer than benchmark euro exposure under performing by over 2% against the benchmark in US dollar terms.
The specialist European bond funds such as Morgan Stanley and Schroder outperformed its benchmark as stronger data from the Eurozone reduced the likelihood of further interest rate cuts by the ECB in the near term and thus, corporates and agencies (where both funds are overweight) performed strongly.
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Old Mutual Elite US$ Defensive comment - Jul 03
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Tuesday, 26 August 2003
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Fund Manager Comment
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| Global Bonds suffered heavy falls during July with the 10 year Treasury note having one of its worst months since 1984. This left the USD Defensive portfolio down by 2.45% for the month, but the fund is well ahead of its sector since launch.
As the dollar gained some ground against the euro and sterling it was the dollar hedged version of the JP Morgan Global bond which performed best of all the global funds. The Invesco fund held up reasonably well, thanks in the main to the weighting in investment grade corporate bonds.
In the US portion it was the Investec fund which performed well, more than offsetting the marginal underperformance from the Schroder Dollar Bond fund. The Investec fund has moved from its long duration position to a much shorter stance which benefited the fund in July.
Within the European portion of the portfolio, both Morgan Stanley and Schroders marginally underperformed their benchmarks through July.
Last month's move away from the UK gilt market in favour of corporates proved to be a good call as both Old Mutual Corporate Bond and Allianz Dresdner High Income outperformed their benchmarks.
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Old Mutual Elite US$ Defensive comment - Jun 03
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Tuesday, 12 August 2003
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Fund Manager Comment
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| Global bonds experienced a negative month in June but performance over the quarter has been good. The Dollar Defensive portfolio has performed very well, posting a healthy return of 5.57% for the three months.
Changes have been made to the portfolio over the quarter in the UK and European portions of the portfolio. The Lombard Odier EU Convergence Bond fund was removed as capital returns tailed off. The fund subsequently declined more than 3%, therefore this was a timely move by the manager.
The Invesco GT Gilt fund was sold and proceeds have been redistributed to the Old Mutual Corporate Bond fund and the Dresdner High Income Bond. This takes exposure away from the gilt market in favour of corporate bonds.
Corporate bonds outperformed government bonds over the latter part of the quarter, as yields on governments issues increased.
The dollar gained against the euro in June, a reversal in trend of the previous few months, and this hurt many of the global managers who were predicting a further rise in the euro against the dollar. The global bond funds struggled against their benchmarks while in the US, the Schroder Dollar bond was the star performer in June.
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Old Mutual Elite US$ Defensive comment - May 03
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Thursday, 19 June 2003
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Fund Manager Comment
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| Global bonds, despite the rise in global equities, also managed to rise strongly in May. The 10% equity exposure acted as a boost to performance over the month and this left the Dollar Defensive portfolio up by 3.95%.
The global bond funds all performed well over May. The euro hedged funds saw performance enhanced through a strengthening euro, whilst the weaker dollar slightly hampered the performance of the Dollar based funds.
Regionally, the US performed relatively poorly, marginally underperforming the JP Morgan Global Traded Index. The Investec fund has remained invested in treasuries at a time when corporates have been performing better, and this dragged slightly on overall performance of the Dollar Defensive portfolio.
The UK bond holdings performed significantly better. The Old Mutual Corporate Bond fund performed strongly, returning over 3% in sterling terms, as did the Invesco GT Gilt fund.
The best performer in the European exposure was Schroder, which outperformed its benchmark by over 0.2%.
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Old Mutual Elite US$ Defensive comment - Apr 03
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Thursday, 12 June 2003
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Fund Manager Comment
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| Global bonds, despite the rise in global equities, also managed to rise in April. The 10% equity exposure acted as a boost to performance over the month and this left the Dollar Defensive portfolio up by 2.4%.
The global bond funds held all performed better than the JP Morgan Global Traded Index. Mellon and JP Morgan were the star performers as these were the funds with the most Euro exposure. The Euro gained against both Sterling and the Dollar once again during April, and these bond managers made additional ground on the back of these currency gains.
In the US, Investec had a poor month as it remained invested at the longer end of the yield curve. This fund, which does not invest in corporate debt, performed very well throughout last year capturing strong upside through the good bond run during 2002. Schroders compensated for Investecs poor month, performing strongly by being invested in a mixture of corporate debt of varying degrees of credit.
In Europe both the Schroder and Morgan Stanley funds were in line with their benchmarks, while value was added through the Lombard Odier European Convergence fund.
In the UK portion of the portfolio, the best performer was the Old Mutual Corporate Bond fund, beating its benchmark by over 1%.
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Old Mutual Elite US$ Defensive comment - Mar 03
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Friday, 23 May 2003
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Fund Manager Comment
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| As equities have continued to suffer from investor uncertainty, bonds have again performed well. Over the quarter the Dollar Defensive portfolio has returned 2.2%, comfortably ahead of the sector.
Due largely to the current war situation in Iraq, economic fundamentals are being broadly ignored and investors are trading predominantly on sentiment. This means that as equities retreat, bonds, although many analysts believe them to already be overvalued, tend to rally.
Within the portfolio, the manager increased the weighting to global bonds from 30 to 33% as global managers are making more aggressive calls relative to some of the regional managers. This benefited the portfolio early on in Q1.
In the UK element of the portfolio, the Barclays BGI Gilt fund was sold during Q1 to make way for the Old Mutual Corporate Bond fund. This fund looks to invest in good quality company debt which is likely to add value to the portfolio. The UK portion is well balanced now 50/50 towards gilts and corporates.
In the European portion during Q1, the manager sold out of the Investec fund and replaced it with the Morgan Stanley fund which has more of a Euro focus. Also within Europe, the manager switched out of the Schroder short-term bond and moved into a very similar fund run by Schroders, which focuses on longer-term duration.
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Old Mutual Elite US$ Defensive comment - Feb 03
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Friday, 28 March 2003
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Fund Manager Comment
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| As investors continue to shun equity markets, bonds appear to be the choice of investors. The US Dollar Defensive portfolio posted a positive return of 1.24% over February and again outperformed its benchmark.
Different asset classes have responded in different ways to the crisis in Iraq. Corporate bond spreads have not widened as expected and volatility indicators have not increased. At the same time, oil has some safety premium as do sovereign bonds.
In the global bond portion, the JP Morgan Euro Global Bond performed well as the euro continued to strengthen against the dollar.
European bonds also performed strongly as President of the European Central Bank, Wim Duisenberg, made comments over the deteriorating economic outlook, helping short dated European bonds perform well.
The Old Mutual Corporate Bond fund was marginally behind its benchmark, whilst the Invesco GT Gilt fund also fell behind its benchmark, making the UK one of the poorer elements of the portfolio over February.
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Old Mutual Elite US$ Defensive comment - Jan 03
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Wednesday, 26 March 2003
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Fund Manager Comment
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| Given the current environment and investors' aversion to equities, the Dollar Defensive portfolio has performed very well. The 10% equity exposure weighed on performance to an extent, however the bond element performed very well. The portfolio rose 1.58% over January, comfortably beating its benchmark and sector.
US Treasuries suffered slightly in comparison with European and Japanese bonds. Corporate bonds managed to resist the declines seen in equity markets, although geopolitical events did raise fears of short-term volatility.
US economic data was once again mixed - consumer confidence was down, but not as weak as was expected, while factory order remain sluggish. However, new homes sales continued to rise in a robust manner. All this data led the Federal Reserve to leave interest rates unchanged at 1.25% in January.
Within the portfolio, the manager has increased the weighting to global bonds from 30 to 33% as global managers are making more aggressive calls relative to some of the regional managers. This has benefited the portfolio over January.
The Barclays BGI Gilt fund has been sold during January to make way for the Old Mutual Corporate Bond fund. This fund looks to invest in good quality company debt which is likely to add value to the portfolio. The UK portion is well balanced now 50/50 towards gilts and corporates.
In the European portion, the manager has sold out of the Investec fund and replaced it with the Morgan Stanley fund. This has more of a Euro focus and this is also key as the Dollar seems set to weaken further against the Euro. Also within Europe, the manager switched out of the Schroder short-term bond and moved into a very similar fund run by Schroders, which focuses on longer-term duration.
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Old Mutual Elite US$ Defensive comment - Dec 02
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Thursday, 13 February 2003
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Fund Manager Comment
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| US bonds had a good December and this was reflected in excellent performance from the Dollar Defensive portfolio. Gains were seen as equity markets fell with Treasuries generally outperforming corporate bonds. The better US holding was the Investec Dollar fund due to its focus on Treasuries.
Economic news remains mixed in the US which prompted the Federal Reserve to cut interest rates by 50 basis points in November, the intention being to provide further stimulus to the economy.
In the UK interest rates have remained unchanged over the quarter again. UK Gilts have provided solid gains in December with the Invesco GT Gilt fund being the best performer of the UK holdings. The BGI Gilt and Fixed Interest holding, which is predominantly a corporate bond fund, performed in line with the benchmark over the month.
Global bond funds showed positive returns over the month as did European and Japanese holdings. The best performing holding in Europe was the Investec European Bond fund. Elsewhere in Europe, the European Central Bank reduced interest rates by 50 basis points as the eurozone, similar to the US, seeks stimulus.
The global equity funds reflected market movements, rising in October and November and falling back in December, to post positive Q4 figures.
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Old Mutual Elite US$ Defensive comment - Nov 02
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Thursday, 19 December 2002
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Fund Manager Comment
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| US bonds fell in November as equities rallied. The US Traded index was down 1.01% while the Global Traded index edged 0.03% higher. The Dollar Defensive portfolio managed to post positive returns amid these conditions which justifies the 10% equity exposure included in the portfolio.
Some positive news came in final reports on third quarter corporate earnings in the US. Companies in the S&P 500 reported an average rise in earnings of 6.9% on the last quarter, and many commentators' expectations are that profits will average an increase of 14.9% in Q4 2002. However, the Federal Reserve did cut interest rates by 50 basis points in November, indicating the economy could use further stimulus and is therefore not in as good a shape as originally thought.
UK Chancellor Gordon Brown gave his pre-Budget report this month, causing controversy by announcing almost doubled levels of government borrowing for 2003 (up to GBP20bn from the previous level of GBP11bn). This announcement came with a downward revision to GDP estimates to 1.6% from a previous figure of 2-2.5%.
Corporate bonds have provided good value and the outlook is promising as corporate fortunes look set to improve, a year on from the Enron fiasco first surfacing. The main US holdings are the Schroder US Dollar Bond and the Investec US Dollar Bond.
The best performer this month was the Lombard Odier EU Convergence fund which was helped by the rise of the euro against the dollar.
All the global equity funds performed well, adding good value to the portfolios over November.
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Old Mutual Elite US$ Defensive comment - Oct 02
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Monday, 18 November 2002
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Fund Manager Comment
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| Global bonds fell in October as equities rallied. The Global Traded index was down 0.42% while the US Traded Index was down 1.23%. The Defensive portfolio managed to post positive returns amid these conditions which justifies the 10% equity exposure which has weighed on performance during the equity bear market.
The global economic picture continues to produce conflicting pieces of data. US GDP growth was 3.1% - a significant improvement on the second quarter, but disappointing compared to projections of between 3.5% and 4%.
The UK saw rather better news this month, as manufacturing achieved positive output growth for a third consecutive month.
Corporate bonds have provided good value and the outlook is promising as corporate fortunes look set to improve. The main US holding is the Schroder US Dollar Bond, which has adopted a more cautious approach recently in the aftermath of Enron and WorldCom. This has helped performance and protected against much of corporate bond volatility.
All the global equity funds performed well adding good value to the portfolios over October.
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Old Mutual Elite US$ Defensive comment - Sep 02
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Friday, 8 November 2002
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Fund Manager Comment
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| Global bonds have enjoyed a good quarter on the back of continued negative sentiment in the equity markets. Despite many seeing bonds as fairly expensive, the flight to quality argument still seems to be capturing investors. The JP Morgan Global Bond index rose 1.18% in September and 4.17% over Q3. Performance of the Dollar Defensive portfolio was held back by the portfolio's 10% exposure to equities.
Economic data emerging from economies world-wide appears conflicting. Fears of a 'double-dip' recession have been subsiding of late, however, falling consumer confidence and manufacturing figures tell a different story. The prospect of a US rate cut is now more of a possibility than earlier in the year when many forecasters were of the opinion that the bottom of the rate cutting cycle had been reached. Data in the UK is more optimistic, especially compared to the eurozone where unemployment remains a prominent problem. Interest rates have remained on hold throughout the quarter in the US (1.75%), the UK (4%) and the eurozone (3.25%).
Some changes were made in Q3 to the portfolio in order to bring it closer to a benchmark neutral position. The manager was previously overweight US dollars so has now added more exposure to euro's, at the expense of US dollars. This change has happened in the global component of the portfolio by reducing half the position in the JP Morgan US Dollar Global Bond fund and replacing it with the JP Morgan Euro Global Bond fund.
The other change which has been made is that part of the underweight to Japan has been addressed. The manager has increased this Japanese weighting by adding a Japanese yen cash fund. This boosts the exposure to Japan and will benefit the portfolio as the Yen is seen to strengthen relative to the US dollar.
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Old Mutual Elite US$ Defensive comment - Aug 02
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Tuesday, 17 September 2002
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Fund Manager Comment
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| Global bonds have been benefiting from the recent sell-off in equities as the flight to quality again took hold of traders. The JP Morgan Global Bond index rose by 1.83% in August. The portfolio posted positive absolute returns in August, up 1.61%.
Expectations of a further strengthening euro after a strong rise against the dollar in July, did not materialise in August. The manager has increased euro exposure, which now leaves the portfolio in an overweight position in both US dollars and euro's.
The manager's decision to increase the weighting in Japan by adding a Japanese yen cash fund last month has proved beneficial to the portfolio as the Yen continued to strengthen relative to the US dollar in August. However, the portfolio is now marginally underweight on expectations that the dollar will be making a comeback.
Mixed economic signals have been coming from the world economies of late, which adds to the uncertainty felt across markets at the moment. US consumer confidence steadied in August, indicating that consumer spending will probably support the economy's recovery. Interest rates have remained unchanged in the US, UK and Europe again in August with a growing possibility that interest rates may remain flat for the rest of the year or indeed fall even further. This is contrary to the belief, shared by many in the early part of the year, that we had seen interest rates bottom out.
Elite is continuing to look towards the corporate bond managers to add value to the portfolio. The US corporate exposure is held via the Schroders and Investec USD Bond funds and in the UK via the Barclays Gilt & Fixed Income fund and the Invesco GT Gilt fund. All of these managers hold bonds in quality companies so the risk of default is minimal.
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Old Mutual Elite US$ Defensive comment - Jul 02
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Thursday, 29 August 2002
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Fund Manager Comment
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| Global bonds have been benefiting from the recent sell-off in equities as the flight to quality again took hold of traders. The JP Morgan Global Bond index rose by 1.10% in July. The portfolio's small exposure to equities had a negative impact on performance but the portfolio still managed to post positive absolute returns in July, up 0.49% and ahead of the benchmark.
Some changes were made in July to the portfolio in order to bring it closer to a benchmark neutral position. The progress being made on the currency markets by the euro has been noted and this trend is widely expected to continue as the US dollar has weakened recently. The manager was previously overweight US dollars so has now added more exposure to euro's, at the expense of US dollars. This change has happened in the global component of the portfolio by reducing half the position in the JP Morgan US Dollar Global Bond fund and replacing it with the JP Morgan Euro Global Bond fund.
The other change which has been made is that part of the underweight to Japan has been addressed. The manager has increased this Japanese weighting by adding a Japanese Yen cash fund. This boosts the exposure to Japan and will benefit the portfolio as the yen is seen to strengthen relative to the US dollar.
Mixed economic signals have been coming from the world economies of late, which adds to the uncertainty felt across markets at the moment. Consumer sentiment fell in the US early in July and then later on in the month Alan Greenspan said in his speech to the US Senate Banking Committee "The US economy is gaining momentum and can weather a loss of faith in corporate honesty". Interest rates have remained unchanged in the US, UK and Europe again in July with a growing possibility that interest rates may remain flat for the rest of the year or indeed fall even further. This is contrary to the belief, shared by many in the early part of the year, that we had seen interest rates bottom out.
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Old Mutual Elite US$ Defensive comment - June 02
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Friday, 26 July 2002
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Fund Manager Comment
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| Global bonds enjoyed their best performing quarter since Q4 1987. The limited equity exposure contained within the Defensive portfolio weighed on otherwise good performance.
The manager began reducing exposure to the global bond component of the portfolio this quarter, instead placing more emphasis on regional managers. From the previous weighting of 40%, the global bond weighting is now 30%. Exposure has been reduced from the JP Morgan Fleming Global Bond fund, which is hedged back to US dollars. With the dollar currently enduring a tough period against other major currencies, this is weighing on overall performance. The strategy to hedge back to dollars has served the portfolio well as the dollar grew in strength, however, as the dollar has been weaker of late, the manager has opted to become more currency neutral.
The manager, having reduced the global exposure, has taken the opportunity of adding to the European weighting. A new fund, Lombard Odier European Convergence Bond Fund, has been added as a satellite holding. The fund gives exposure to higher yielding debt in Europe without exposure to the struggling telecom based corporate bond sector. It offers the potential to benefit from convergence to EMU bonds as happened with Italy and Spain when they joined the EU. This fund addition takes on more of a political/geographical risk as opposed to the traditional funds which look to take on corporate/government risk. Throughout June, the best performing region for bonds was Europe, bringing justification for the Elite manager's conviction.
The Old Mutual Worldwide Bond and the Mellon Newton Global Bond have both been strong performers year to date, adding value to the portfolio. These funds both hold top quality corporate bonds. The Worldwide Bond fund was a positive contributor to the portfolio as an overweight position in the Eurobloc led to dollar gains.
The Elite manager is continuing to look towards the corporate bond managers to add value to the portfolio ahead of government bonds. The US corporate exposure is held via the Schroders USD Bond and in the UK via the Barclays Gilt & Fixed Income fund. Both of these managers hold bonds in quality companies to keep the default risk minimal.
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Old Mutual Elite US$ Defensive comment - May 02
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Friday, 26 July 2002
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Fund Manager Comment
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| Global bonds enjoyed a second successive good month at the expense of equities. The JP Morgan Global Bond index rose 2.72%, adding to the 3.55% posted during April. The portfolio enjoyed another positive month on the back of the good returns from bonds.
The manager has begun to reduce exposure to the global bond component of the portfolio, instead placing more emphasis on regional managers. From the previous weighting of 40%, the weighting is now 30% and may be reduced a little further in coming months. The Old Mutual Worldwide Bond and the Mellon Newton Global Bond have both been strong performers year to date, adding value to the portfolio. These funds have both moved down the credit curve but holdings are top quality corporate bonds. The Worldwide bond fund has seen positive attribution as an overweight position in the eurobloc has led to dollar gains.
The reduction in the global component is coming from the exposure to the JP Morgan Fleming Global Bond fund, which is hedged back to US dollars. With the dollar currently enduring a tough period against other major currencies, this is weighing on overall performance. The strategy to hedge back to dollars has served the portfolio well as the dollar grew in strength, however, as it appears some weakening could set in, the manager has opted to become more currency neutral.
The manager, having reduced the global exposure, has taken the opportunity of adding to the European weighting. A new fund, Lombard Odier European Convergence Bond Fund, has been added as a satellite holding. The fund gives exposure to higher yielding debt in Europe without being dragged along by the telecom based corporate bond sector. It offers the potential to benefit from convergence to EMU bonds as happened with Italy and Spain when they joined the EU. This fund addition takes on more of a political/geographical risk as opposed to the traditional funds which look to take on corporate/government risk.
Elite is continuing to look towards the corporate bond managers to add value to the portfolio. The US corporate exposure is held via the Schroders USD Bond and in the UK via the Barclays Gilt & Fixed Income fund. Both of these managers hold bonds in quality companies so the risk of default is minimal.
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Old Mutual Elite US$ Defensive comment - April 02
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Monday, 24 June 2002
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Fund Manager Comment
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| Bonds, as in most cases when equities slide, were the favoured asset this month. Global bonds, as represented by the JP Morgan Global Index rose 2.83%. Overall attribution was strong although the largest holding in the fund - the JP Morgan Fixed Interest fund - held back performance as the benchmark rose propelled by the Dollars' depreciation. The fund remains ahead of its benchmark year to date and over the longer term.
The performance of the portfolio was hampered this month by the JP Morgan's hedging policy. Where JP Morgan have no convictions over a currency they hedge back to US Dollars and the depreciation of the US Dollar over April meant the fund languished as non-US Dollar bonds moved ahead. The Dollar hedge has served the fund well in months past but this month it handicapped the portfolio.
The direction of monetary policy continues to cause the market to gyrate uncontrollably. A view gaining more credit in the US is that there is a risk premium implied into short dated debt. The Federal Reserve has indicated that it is prepared to let inflationary pressures build before raising interest rates. No one is truly aware when the Federal Reserve will begin to raise interest rates and the comment over inflationary pressures adds another factor to the equation. Once interest rates begin to move upward the question is then: by how much and how rapidly? These uncertainties have caused the US bond market to be at its most volatile for fifteen years. As a result of these factors the US Treasury bond managers have moved into medium term debt.
Elite is looking to corporate bond managers to add value going forward, the spread of corporate bonds over US Treasuries is expected to narrow with improving company balance sheets pushing corporate bond prices upward. The corporate bond funds held within Elite are Schroders USD Bond in the US and in the UK the Barclays Gilt & Fixed Interest. Both these managers hold top quality bonds in solid companies so the default risk is minimal.
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Old Mutual Elite US$ Defensive comment - March 02
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Thursday, 16 May 2002
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Fund Manager Comment
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| A poor quarter for bonds was rounded off by further falls in March 2002, with the JP Morgan Global Bond index down 0.5%, 1.5% for the quarter. The Dollar Defensive portfolio fell slightly during March 2002 but is ahead of its benchmark over longer time periods and second quartile since launch.
Bonds were driven downwards as a result of uncertainty over the pace and scale of impending interest rate increases. Alan Greenspan, from the Federal Reserve, has indicated that he is prepared to wait until the recovery is firmly in place before looking to increase rates so as not to jeopardise the recovery in its early days.
In the global bond component, the manager has marginally reduced the JP Morgan Global Bond in favour of the Invesco GT Bond. Being an unhedged product there is more scope for currency gains against the US Dollar and also the amount of credit products held, eg, agency debt, in the fund is higher than JP Morgan. The portfolio now has 30% in each of the funds (of the global weight) and the manager believes that an active strategy to currency and credit will help relative performance against the benchmark.
In both the US and the European parts of the portfolio the manager has been increasing the holding of the Investec funds.
Being underweight Japan hurt relative performance in March 2002. The JPM Global Traded was down 0.44% but the Japanese index was up 1.77% (US$ terms). Over the last six months however, the strategy has proved correct with Japan underperforming by just over 5% (US$ terms), which contributed to relative outperformance over a six month period. The spike in the market (especially the currency) has been attributed to end of year window dressing propping up of positions by the Bank of Japan. Longer term the underweight position will be maintained unless the manager sees a dramatic change in underlying fundamentals.
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