Your Industry  

Fund Review: Global Bonds

Introduction

As a result, global government bond spreads are showing a similar divergence, and makes the role of finding good yields in global fixed income a more difficult task.

Data from Thomson Reuters shows that as of April 23 2015 the yield on 10-year government bonds from 10 countries including the Netherlands, Germany and Finland were all below 1 per cent.

The yields for Canada, the US and UK 10-year government bonds remain below 2 per cent, with only Portugal and Australia peering over the 2 per cent band with 2.02 per cent and 2.53 per cent, respectively.

Figures from the Investment Association show that in February fixed income remained a less popular asset class than both equities and property, as investors continue their hunt for income.

However, within fixed income, Global Bonds proved the most popular sector in February for the first time in 12 months, with net retail inflows of £99m, just pulling ahead of the Strategic Bond sector inflows of £95m.

But it is only recently that global bond funds have started to find favour, as for eight of the past 12 months the sector has recorded negative retail flows.

The question is whether the macro environment will continue to support global bond funds.

Mark Harris, head of multi asset at City Financial, says: “Most investors are now focused on the likely path of interest rates in the US and its consequences for global asset-pricing conditions. I am bullish [that] the ECB sovereign bond-buying programme should continue to lift European equity prices, along with expectations of improved growth. We are witnessing nascent signs of improved lending in Europe and consumer confidence has reached eight-year high.”

A recent BlackRock research paper entitled ‘What will the future yield?’ notes that central banks’ monetary policies “look set to remain the key driver of fixed income markets for years to come, but it is becoming increasingly difficult to anticipate the banks’ actions”.

It states: “What is certain is that global yields are going to stay low for a long time… The reality of negative yields and the omnipresence of central bank bond buyers may be fundamentally shifting the way we need to think about fixed income.”

The paper adds: “Finding yield in this environment requires investing more broadly across countries and regions, for example incorporating more of Asia and the emerging markets. It also means going deeper into capital structures and allocating more broadly to non-conventional fixed income products such as high yield, infrastructure, real estate and private market debt. It means adopting an approach that is unconstrained by traditional benchmarks as well as being flexible.”

THE PICKS

Pimco Global Bond ex-US

Managed by a four-strong team, this $723.7m (£480.9m) fund aims to provide a diverse, actively managed portfolio of global fixed income securities. It mainly invests in investment-grade bonds denominated in major world currencies, with an average duration of plus or minus three years of the benchmark Citi World Government Bond ex-US Index. It has consistently appeared in the top 10 of the IA Global Bond sector, with its 10-year return of 130.6 per cent almost double the sector average of 70.27 per cent.

Templeton Global Total Return Bond

Launched in June 2008 this £295m offering is managed by Michael Hasenstab and Sonal Desai. Its portfolio of roughly 450 holdings aims to achieve a total return from a combination of income, capital growth and capital gains. It has delivered top-quartile returns across one and three years, although its five-year return of 27.15 per cent sees it fall into the second quartile in spite of outperforming the IA Global Bond sector average of 17.85 per cent. Its top 10 holdings are geographically diverse and include debt from the governments of Mexico, Malaysia, Korea and Poland.

EDITOR’S PICK

Legg Mason Brandywine Global Fixed Income

A member of the Investment Adviser 100 Club 2014, this $1.46bn (£970m) offering was launched in 2003 and is managed by David Hoffman. The fund invests mainly in a portfolio of fixed or floating-rate debt securities and debt obligations issued by government or government-related issuers worldwide in a relatively concentrated portfolio of roughly 33 holdings. It has delivered consistent top-quartile performance across one, three and five years, with the five-year return of 39.77 per cent comfortably outstripping the IA Global Bond sector average of 17.85 per cent. Its largest geographical weighting is to the US at 29.37 per cent of the portfolio.

In this special report