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STANLIB Multi-Manager Global Bond Fund - News
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STANLIB Global Bond Comment - Dec 09
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Thursday, 25 February 2010
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Fund Manager Comment
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Having moved with no great trend within a wide range from August to November, the US bond market fell sharply in December: the 1 O-year T -note yield tightened by more than 50 basis points from end-September, and was even more marked at the short end of the curve. A combination of factors accounted for this tightening right across the curve - an increase in inflation fears upon the publication of a 1.8% rise in producer prices between October and November; concerns about forthcoming issues; confirmation of the economic recovery; and finally, expectations of a tightening of monetary policy despite the still accommodative stance of the Fed. European bond markets outperformed their US counterparts by quite a wide margin, mostly due to the expectations of a long period of no change in interest rates by the ECB and the strength of the Euro against the Dollar up to early December. Improved investor sentiment tended to favour risk assets over the quarter, particularly high yield and emerging market debt, although investment grade corporate credit was also well supported, whilst sovereign debt lagged over the quarter. The STANLIB Multi Manager Global Bond Fund outperformed the Barclays Global Aggregate Bond index over the fourth quarter of 2009, posting a return of -0.1 % against the benchmark return of -0.8%. Whilst all three managers were ahead of the benchmark for the period, the most significant contribution came from Brandywine, which outperformed the benchmark by 190 basis points. Overall, outperformance owed to a combination of currency allocation (mainly the underweight exposure to the Japanese Yen) and allocation to high yield debt. Manager allocation to US corporate credit also proved positive. The key uncertainty in the investment outlook is the sustainability and durability of the current turnaround in global economic growth. Central banks, who are maintaining a cautious stance, find themselves faced with a rising trend in long rates which is likely, if it were to strengthen, to impact adversely on economic growth which they think is still fragile. Whilst they should outperform government bonds, returns from the corporate credit market are likely to be weaker going forward, particularly compared to equities. Although the economic background remains favourable for credit, returns will be more from the carry effect rather than spread tightening.
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STANLIB Global Bond Comment - Sep 09
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Thursday, 17 December 2009
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Fund Manager Comment
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Over the third quarter of 2009, government bond yields were pushed around by a series of contrasting forces - increased issuance and signs of economic recovery on the one hand, and accommodative central banks plus falling inflation on the other. Global investment grade spreads tightened another percentage point to just over 2% more than government bonds. High yield spreads also compressed and in aggregate, credit market total returns were much higher than government bonds. The biggest beneficiaries were Industrials and Financials. Industrial companies' bonds performed particularly well as the crisis abated, often helped by the sector's new-found balance sheet prudence.
The STANLIB Multi Manager Global Bond Fund made a gain of 7.8% for the third quarter of 2009, having outperformed the Barclays Capital Global Aggregate Bond index return of 6.2%. Whilst all three managers had a successful quarter and were ahead of benchmark, it was Brandywine's significant outperformance that made the biggest contribution. Overall, the fund benefited from an overweight exposure to US corporate credit, although currency allocation (particularly emerging market currencies) had a significant effect on relative performance. High yield exposure also contributed to returns.
US and European bond markets remain torn between the prospect of seeing short-term interest rates rise in coming months (return of official rates to more normal levels) and a less optimistic scenario for activity in 2010. However, government bonds should continue to receive support in the short term from accommodative monetary policies and declining inflation, although the progressive withdrawal of Quantitative Easing is likely to impact at some point. Corporate credit is still benefiting from significantly improving downgrade/upgrade ratios, but this is mostly priced in already so returns from this asset class are likely to be more modest going forward.
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STANLIB Global Bond Comment - Sep 08
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Tuesday, 2 December 2008
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Fund Manager Comment
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Fears of an economic slowdown and the perception that inflation would slow dramatically in a recession resulted in strong inflows into the global bond markets during the quarter. In spite of this, the Lehman Global Aggregate index was down 3.8%. Authorities, keen to resolve a massive credit crisis, have quickly changed their focus from inflation to financial market stability. Liquidity flows supported sovereign bonds at the expense of credit. The flight to quality also benefited the US Dollar which rallied strongly against the Euro and Sterling, and the Japanese Yen, which benefited from the unwinding of the carry trade.
The Stanlib Multi-Manager Global Bond Fund outperformed its benchmark by 0.5% for the quarter. Currency positioning has been the main driver of performance throughout the period. Although the portfolio had an overweight exposure to the US Dollar, this was offset by a significant underweight in the Japanese yen and exposure to commodity currencies, including the Australian Dollar and Brazilian Real which underperformed significantly. Brandywine, which was the biggest detractor to performance within the Fund also suffered from its exposure to corporate bonds and mortgage backed securities, when spreads widened sharply over the quarter.
Bonds should perform well in the current macro environment as growth slows and inflation falls. Financial conditions are also supportive with abundant liquidity provided by Central Banks and expectations of more accommodative monetary policies. In terms of corporate credit, the crisis is by no means over and tightening credit conditions will probably remain as a result of increasing balance sheet constraints in the banking sector. However, the spreads offered on investment grade debt look attractive and offer long term value.
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STANLIB Global Bond Comment - Jun 08
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Thursday, 18 September 2008
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Fund Manager Comment
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Global government bond markets turned around during the second quarter of 2008. The increased focus on growing inflationary risk by investors resulted in yields moving higher and bond prices selling off. Although there was a strong rally towards the end of the quarter, this was not enough to prevent the global bond indices from finishing the period in negative territory. Following the flight to quality in the first quarter, the second quarter saw sovereign debt underperforming other fixed income assets - the Lehman Global Aggregate Bond index outperformed the JP Morgan Global Government Bond index by 150 basis points over the period. High yield in particular performed well, given the more likely prospect of a soft economic landing and strong corporate fundamentals. Better than expected economic news from the US helped the US dollar rally against the other three major currencies, albeit Sterling was actually the strongest performing currency during the quarter.
The STANLIB Mulit-Manager Global Bond Fund returned -2.0% over the second quarter, comfortably outperforming the JP Morgan Global Government Bond index return of -4.4%. Currency positioning, notably being overweight the US dollar and underweight the Euro and Japanese yen was a key contributor to outperformance, as was the short duration positioning of the portfolio.
The massive flight to quality is over and interest rates will probably have to rise in the short term. In a rising rate scenario, corporate and credit issues are expected to suffer. However, the credit crisis has already done much of the work ahead of the real economy, and there are longer-term pockets of value present that can be exploited. On this basis credit should be favoured above sovereign debt, with sovereign debt biased towards index-linked issues. The outlook one merging market debt is uncertain - the attractiveness of the currency could be outweighed by the inflationary backdrop for emerging economies.
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STANLIB Global Bond Comment - Mar 08
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Thursday, 10 July 2008
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Fund Manager Comment
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Global bond markets rallied across all major markets on the first quarter of 2008 as a flight to quality took hold. Sovereign debt continued to outperform other fixed income assets - the JP Morgan Global Government Bond index gained 9.6% in the first quarter of 2008, compared to the Lehman Global Aggregate index return of 6.6% (in US dollar terms). The US dollar continued to tumble this quarter against a broad spectrum of currencies as the Federal Reserve continued to cut rates in order to battle financial distress. The Japanese yen was the best performing currency this quarter, sharply appreciating against the US dollar.
The Stanlib Global Bond fund returned 4.7% over the quarter, trailing the JP Morgan Global Government Bond index. Underperformance was primarily due to the portfolio being underweight both the Japanese yen and the Euro throughout the quarter, with both currencies performing strongly against the US dollar. Brandywine and Credit Agricole had been especially underweight in both of these currencies for fundamental reasons, believing that the Euro was extremely overvalued and that there was no structural support for the yen.
The risk to fixed interest markets is that the reflationary policies of the west will become inflationary - and this will overtake the defensive nature of fixed rate sovereign debt. However, many managers now believe that there are significant opportunities within investment grade corporate debt to identify companies with solid balance sheets that have been sold off wholesale across the credit markets. Whilst technically the Euro remains supported at present, the UK and Europe will probably need to cut interest rates going forward into 2008, which will be helpful for the US dollar. Commodity currencies are likely to come under pressure going forward as a slowdown in global growth lowers expectations for future commodity demand and prices.
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STANLIB Global Bond Comment - Dec 07
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Tuesday, 11 March 2008
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Fund Manager Comment
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Global bonds saw a second consecutive quarter of positive returns with a flight to quality driving outperformance from sovereign debt in particular. The JP Morgan Global Government Bond index had a positive return of 4.0% in the fourth quarter, compared to 3.3% from the Lehman Global Aggregate index.
The Portfolio gained 2.7% over the quarter, but lagged the JP Morgan Global Bond Index by 130 basis points. Increased risk aversion mid-way through the quarter, similar to that seen in the second quarter led to the Japanese yen outperforming all other currencies, particularly the commodity-related currencies. The portfolio was heavily underweight the yen during the quarter and that proved to be the biggest detractor to performance.
Bond spreads have been widening recently, providing bond managers with more attractive opportunities than have been seen for a long time. With sovereign yields discounting too much negativity, credit is starting to look like good value again, particularly high quality corporates and mortgages.
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STANLIB Global Bond Comment - Sep 07
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Tuesday, 11 March 2008
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Fund Manager Comment
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Global bond markets (USD +7.2%) enjoyed a buoyant quarter as sub prime concerns and risk aversion encouraged a flight to safety. The greater than expected rate cut by the Fed, coupled with a consensus view that rates globally have peaked also supported fixed interest markets. This does however need to be seen in context as the previous quarter was characterised by a global economy surprising on the upside resulting in a rout in bond markets - so base effects clearly played a role in the relative out performance.
The fund gained 6.3% for the quarter, 85bpts behind the JP Morgan Global Bond Index. This can largely be attributable to the underweight position in the yen (13.9% vs. 29.4%), which rebounded by 7.4% as investors unwound the so-called carry trade. Barings had a positive impact on relative returns with a 10.4% gain while Credit Agricole detracted, as they were short duration and underweight the yen. The duration of the fund has been increasing in line with rising rates as we expect the rate cycle may be close to peaking. We do however remain short by about a year as capacity utilization remains high implying increased pricing power, while in the short term headline inflation is still above central bank targets and could drag core higher. On the plus side the superior credit quality within the portfolio contributed to the funds performance relative to peers. In this regard 85% of the fund is in AAA paper, as we believe the risk premium for credit is too low. As long as bond yields remain below earnings yields there is scope for M&A, buybacks and private equity investors to "arbitrage" the cost of equity and debt capital. Our view is risk premiums will normalize and only then will the credit weighting in the portfolio increase.
Looking ahead bonds could be underpinned by slower US consumer spending on the back of higher petrol costs and weaker housing prices. Additionally budget deficits have improved as tax receipts exceed expectations so supply constraints should be positive. Higher yields could also tempt pension funds to switch into bonds simply because it will enable them to immunise their liabilities. Finally, and probably the best indicator of future movements in yields is the ISM. Recently it dipped to 52 implying growth, but at a slower pace, which if it continues to drop implies lower bond yields.
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STANLIB Global Bond Comment - Jun 07
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Wednesday, 26 September 2007
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Fund Manager Comment
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The fund outperformed its benchmark by 1.2% during the period under review. Brandywine had a positive impact on returns with a 0.6% gain while Credit Agricole was also marginally positive. Unfortunately this was offset by underperformance of the Barings Fund that declined 3.6%. On the whole out performance can largely be attributable to the defensive duration position as well as the superior credit quality within the portfolio. In this regard89%of the fund is in AAA paper as we believe the risk premium for credit is too low. As long as bond yields remain below earnings yields there is scope for M&A, buybacks & private equity investors to "arbitrage" the cost of equity & debt capital. Our view is risk premiums will normalize & only then will the credit weighting in the portfolio increase. Duration of the fund (1 year below the benchmark's 6.1 years) also contributed to returns as evidence of the global economy surprising on the upside caused bond yields to back up. The duration has however been increasing in line with rising rates as we expect the rate cycle may be close to peaking. For now though there is no need to "fight the ECB, BOE & BOJ". A synchronized tightening of monetary policy by central banks means higher interest rate risk. Capacity utilization also remains high implying increased pricing power, while in the short term headline inflation is still above central bank targets & could drag core higher.
On the positive side weaker US consumer spending on the back of higher petrol costs & weaker housing prices could underpin bonds. Rates in the US are now also considered restrictive & over tightening could become a tail wind for bonds. Additionally budget deficits have improved as tax receipts exceed expectations so supply constraints should be positive. Higher yields could also tempt pension funds to switch into bonds simply because it will enable them to immunise their liabilities. Finally labour costs in China & India remain a long term deflationary theme while technology & telecommunications also assist in keeping inflation under control.
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STANLIB Global Bond Comment - Mar 07
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Tuesday, 29 May 2007
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Fund Manager Comment
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The portfolio is multi managed. We have three managers, two core (55% of portfolio) and one active manager (45% of portfolio).
The Global Bond Fund has been defensively positioned for some time now, both in respect of credit and duration. 90% of the portfolio is in AAA paper. We believe the risk premium for credit, relative to government bonds, is too low and hence our small exposure. We expect that as risk premiums will normalize over the medium term and only then will the credit weighting in the portfolio will increase.
Duration of the fund too is defensively positioned, some 1.3 year below that of the benchmark's 6.0 years. The duration has been increasing inline with rising global long term interest rates. The fund is overweight the Japanese Yen and other European currencies, neutral the US dollar and under weight the Euro.
The fund had a reasonable quarter quarter, marginally under performing its benchmark. The medium to longer term returns are good. We believe the outlook for the bond market is improving.
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STANLIB Global Bond Comment - Dec 06
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Tuesday, 13 March 2007
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Fund Manager Comment
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The portfolio is multimanaged. We have three managers, two core (55% of portfolio) and one active manager (45% of portfolio).
The Global Bond Fund has been defensively positioned for some time now, both in respect of credit and duration. 90% of the portfolio is in AAA paper. We believe the risk premium for credit, relative to government bonds, is too low and hence our small exposure.We expect that as risk premiums will normalize over the medium term and only then will the credit weighting in the portfolio will increase.
Duration of the fund too is defensively positioned, some 1.3 year below that of the benchmark's 5.9 years. The duration has been increasing inline with rising global long term interest rates. The fund is overweight the Japanese Yen and other European currencies, neutral the US dollar and under weight the Euro.
The fund had a good quarter, out performing its benchmark. The medium to longer term returns are good. We believe the outlook for the bond market is improving.
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STANLIB Global Bond Comment - Sep 06
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Tuesday, 28 November 2006
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Fund Manager Comment
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The portfolio is multi managed. We have three managers, two core (55% of portfolio) and one active manager (45% of portfolio).
The Global Bond Fund has been defensively positioned for some time now, both in respect of credit and duration. Over 90% of the portfolio is in AAA paper. We believe the risk premium for credit, relative to government bonds, is too low and hence our small exposure. We expect that as risk premiums will normalize over the medium term and only then will the credit weighting in the portfolio will increase.
Duration of the fund too is defensively positioned, some 1 year below that of the benchmark's 5.9 years. The duration has been increasing inline with rising global long term interest rates. The fund is overweight the Japanese Yen and other European currencies, just under weight the US dollar and under weight the Euro.
The past quarter is the first quarter in some time that the fund under performed its benchmark. The medium to longer term returns are good. We believe the outlook for the bond market is still negative but it is improving.
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STANLIB Global Bond Comment - Jun 06
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Wednesday, 30 August 2006
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Fund Manager Comment
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The portfolio is multi managed. We have three managers, two core (55% of portfolio) and one active manager (45% of portfolio). The fund has been defensively positioned for some time now, which has been correct. Over 90% of the portfolio is in AAA paper. We believe the risk premium for credit, relative to government bonds, is too low and hence our small exposure. We expect that as risk premiums will normalize over the medium term and only then will the credit weighting in the portfolio will increase. Duration of the fund too is defensively positioned, some 2 years below that of the benchmark's 5.9 years. The duration has been increasing inline with rising global long term interest rates. The fund is overweight the Japanese Yen and other European currencies, just under weight the US dollar and under weight the Euro. The past quarter is the first quarter in some time that the fund under performed its benchmark. The medium to longer term returns are good. We believe the outlook for the bond market is still negative but it is improving.
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