Fixed IncomeJun 21 2017

Advertorial: DIVERSIFICATION IS AXA IM’S WINNING STRATEGY

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Advertorial: DIVERSIFICATION IS AXA IM’S WINNING STRATEGY

The recently launched AXA Global Short Duration Bond Fund, run by senior portfolio manager Nicolas Trindade, has the ability to invest in attractive opportunities across the entire global short duration fixed income market. This includes inflation-linked, investment grade, high yield and hard currency emerging market bonds up to a maturity of five years. It aims to mitigate volatility while maximising returns, achieved, in part, by dynamically asset allocating across the global fixed income universe. The fund is also characterised by relatively high levels of liquidity (with 20% expected to mature each year on average), which may help lower transaction costs and allows active management while still meaning the fund can hold most bonds to maturity.

“In my view, investors have predominantly three ways to enhance yields: they can go down in credit quality, look globally for opportunities or extend maturities,” Mr Trindade explains. “Since the latter is not currently attractive due to flat yield curves and the threat of rising yields, investors are increasingly embracing global markets in their hunt for higher returns. Despite declining risk premiums across the board due to central banks’ bond buying schemes, yield opportunities are still available in the global credit market – depending on an investor’s risk appetite, the yield pickup can still be quite rewarding. By investing across the global fixed income market, investors can also benefit from enhanced diversification and therefore mitigate portfolio risk. Investors can have access to a wider range of sectors and geographies compared to single markets.

This fund sits alongside other short duration strategies at AXA Investment Managers that fall into five categories: inflation-linked, investment grade, emerging markets, high yield and global. Capitalising on 15 years’ experience managing short duration strategies, the newly launched global fund will leverage off this suite of local short duration funds in order to incorporate their best ideas. This affords investors the potential to benefit from dynamic asset allocation while achieving higher levels of diversification within their bond portfolio.

Looking more broadly, Mr Trindade believes there are real benefits to going global when it comes to bond allocation, particularly when incorporating emerging markets as well as high yield developed market bonds, although these opportunities also present higher risks. Indeed, AXA Investment Managers has been channelling extra resources into its research capability in emerging market debt, taking into consideration the vast array of opportunities coupled with the need for thorough due diligence. Overall, he identifies several key areas that make global bonds of interest.

He says: “If you are a UK or European investor, I think going global is quite attractive for three main reasons. Firstly, from a yield enhancement perspective, going global gives you access to different markets with some potentially higher yielding sectors found only in specific regions. Secondly, when you go global you can benefit from better diversification. For example, there are some sectors that are underrepresented in sterling and euros that are more readily accessible in dollars. Finally, you can benefit from cross-currency relative value opportunities. Some issuers issue globally in different currencies and sometimes they do not trade in line. A bond from one particular issuer can be cheaper in dollars versus euros, or cheaper in sterling versus dollars, for example – with the exact same underlying credit risk. One benefit of going global is that you can therefore buy an issuer’s bond in its cheapest currency.”

Mr Trindade is clear too that it pays in the current market to opt for an unconstrained, strategic approach rather than a benchmarked one. There are rich pickings in a global universe where a skilled manager can identify extra yield with relatively low additional risk, as well as creating a diversified portfolio.

This communication is for professional clients only and must not be relied upon by retail clients.

The views expressed do not constitute investment advice, do not necessarily represent the views of any company within the AXA Investment Managers group of companies and may be subject to change without notice. The capital of the Fund is not guaranteed. It is subject to the risk that a counterparty to a transaction does not meet its obligation which can adversely affect the value of the Fund. It is also subject to the risk that an issuer of bonds will default on its obligations to pay income or repay capital, resulting in a decrease in the fund’s value. The risk of default for high yield bonds may be greater. Derivatives can be more volatile than the underlying asset and may result in greater fluctuations to the Fund’s value.

In the case derivatives are not traded on an exchange they may be subject to additional counterparty and liquidity risk. Emerging markets or less developed countries may face more political, economic or structural challenges than developed countries. As a result, investments in such countries may cause greater fluctuations in the Fund’s value than investments in more developed countries.

Investments issued or traded on markets in different countries may involve the application of different standards and rules (including local tax policies and restrictions on investments and movement of currency), which may be subject to change and may impact the Fund’s value. Fluctuations in interest rates will change the value of bonds, impacting the value of the Fund. The valuation of bonds will also change according to market perceptions of future movements in interest rates. Some investments may trade infrequently and in small volumes. As a result the Fund manager may not be able to sell at a preferred time or volume or at a price close to the last quoted valuation. The Fund manager may be forced to sell a number of such investments as a result of a large redemption of shares. Depending on market conditions, this could lead to a significant drop in the Fund’s value and in extreme circumstances lead it to be unable to meet its redemptions.

Before making an investment, investors should read the relevant Prospectus and the Key Investor Information Document / scheme documents, which provide full product details including investment charges and risks. The information contained herein is not a substitute for those documents or for independent advice. Past performance is not a guide to future performance.

The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested. Due to this, an investment is not usually suitable as a short term holding.

NICOLAS TRINDADE IS PORTFOLIO MANAGER of AXA IM

Issued by AXA Investment Managers UK Limited, which is authorised and regulated by the Financial Conduct Authority in the UK. Registered in England and Wales No: 01431068. Registered Office: 7 Newgate Street, London EC1A 7NX. 21071 06/2017