mand g global macro bond citywire north mr - sep 13
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M&G Global Macro Bond Fund
September 2013
M&G Global Macro Bond Fund
• Fund manager: Jim Leaviss
• Deputy fund manager: Mike Riddell
• Launch date: October 1999
• Fund structure: UCITS III
• Size: £1,313 million
• Sector: IMA Global Bond sector
• Gross redemption yield: 3.1%
Fund facts
Source: M&G 31 July 2013. Ratings, 30 June 2013 and should not be taken as recommendations
An S&P Capital IQ fund grading represents an opinion only and should not be relied on when making an investment decision. Past performance is not indicative of future results. Currency exchange rates may
affect the value of investments. Copyright © 2012 by McGraw-Hill international (UK) Limited (S&P), a subsidiary of The McGraw-Hill Companies, Inc. All rights reserved.
Mike Riddell
• Mike Riddell joined M&G’s fixed interest team in 2003,
originally as a portfolio analyst
• In March 2010, he was promoted to fund manager of the M&G
Emerging Markets Bond Fund, the M&G International
Sovereign Bond Fund and the M&G Index Linked Bond Fund
• Prior to joining M&G, Mike worked as an assistant portfolio
manager at Premier Asset Management within the private client
department, covering both equities and fixed income
• Mike graduated from Birmingham University in 2001 with a BSc
honours in money banking & finance, and is CFA charterholder
Biography
M&G Global Macro Bond Fund €A Acc
Risk-adjusted performance vs sector over 1 year, 3 years and 5 years
Source: Morningstar, Inc., Pan-European database, 31 July 2013, euro A share class, gross income reinvested, price to price
Aims to deliver attractive risk-adjusted returns
– ranks 1st quartile over 1 year, 3 years and 5 years
-10
-8
-6
-4
-2
0
2
4
6
8
10
4 6 8 10 12
Annualised volatility of returns p.a. (%)
1 year
1 year
3 years
5 years
M&G Global Macro Bond Fund Morningstar Global Bond sector average
Annualis
ed r
etu
rns p
.a. (%
)
3 years
5 years
M&G Global Macro Bond Fund
September 2013
Michael Riddell, deputy Fund Manager
Source: www.youtube.com, M&G, June 2013
Ben Bernanke questioned by Kevin Brady at the Joint
Economic Committee on 22 May 2012
0
1
2
3
4
5
6
7
8
9
10
UK
Germany
US
%
10 occasions when the 10 year bond has risen by 1% or more
The recent rise in yields has been triggered by Ben Bernanke’s
comments on the Fed’s tapering intentions
Source: M&G, Bloomberg, August 2013
How was the 1994-experience?
Sell off in 1994 was painful but ‘93 and ’95 were good years
1993- 1995: Indexed returns vs Fed rate
Date US Treasuries US Corp BBB Merrill Lynch US HY Index Fed Rate
1993 9.65% 12.21% 18.99% 3%
1994 -3.16% -2.45% -3.10% 5.5%
1995 18.61% 22.02% 20.50% 6% (peak)
1993-1995 25.10% 31.78% 36.39%
1994-1995 15.45% 19.57% 17.40%
Source : Bloomberg, M&G, June 2013
Source: Bloomberg, M&G, 21 August 2013
Fed rate hike expectations up dramatically F
ed
Fu
nd
s R
ate
Fu
ture
, 30 D
ay,
in %
21/08/13
Significantly tighter monetary policy expected until 2016
21/05/13
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
2
Forward Guidance as part of
Central Banks‟ exit strategy
Central Banks’ exit strategies – forward guidance
Source: www.youtube.com, M&G, August 2013
%
Source: Bloomberg, M&G, August 2013
Unemployment has fallen steadily in the US
The unemployment rate could hit the threshold level of 7% soon
4
4.5
5
5.5
6
6.5
7
7.5
8
8.5
9
9.5
10
US unemployment rate
QE3 starts
“Tapering threshold”
“Rate hike threshold”
%
Source: Bloomberg, M&G, August 2013
But don’t forget inflation…
Impossible for the Fed (and other central banks) to hike whilst
inflation falling aggressively
0
0.5
1
1.5
2
2.5
3
3.5
4
UK core CPIyoy
US corePCE yoy
Eurozonecore CPI yoy
Why Maradona should matter to Central Banks today
Source: www.youtube.com, M&G, June 2013
Tighter Fed policy as well as a China
slowdown are negative for EM
Fed balance sheet expansion has led to strong capital flows into EM
Source: Nomura, M&G, June 2013
For each $bn of Fed balance sheet expansion, capital flows
into EM rose by $1.4bn
Five EM countries: Mexico, Brazil, Indonesia, South Africa, Turkey
Fed balance sheet (lhs)
Non-FDI in flows (rhs)
$b
n
3400
3200
3000
2800
2600
2400
2200
2000 -50
0
50
100
150
200
250
300
$b
n
Sept-09 Jun-10 Mar-11 Dec-11 Sep-12
Fed balance sheet expansion vs. non-FDI inflows into EM countries
Rapid credit growth is a strong warning sign
Change in gross private non-financial sector
debt as % of GDP, 2002 – 2012
Source : IMF, Citi, M&G, July 2013
China has seen a bigger credit bubble than US and UK’s
bubbles in run up to 2008
50%
40%
30%
20%
0%
-10%
-20%
-30%
10%
Change from 2002 to 2008
Change from 2008 to 2012
China is heavily indebted relative to emerging
peers - Total Debt to GDP vs GDP per Capita
300%
Tota
l D
ebt / G
DP
250%
0%
200%
150%
100%
50%
GDP per Capita
Malaysia
Korea
Taiwan
Thailand
Slovenia
Hungary
Poland
Brazil Czech Republic
Slovakia
Russia
Mexico Philippines
Indonesia Pakistan
India
China
Japan 1988
Source: Economic Perspectives IMF
-16
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
3 4 5 6 7 8 9 10 11 12 13 14 15
AUD
BRL
MXN
NZD
SEK
NOK
JPY ZAR
DKK EUR
Historic Vol 1y
Historic major FX short positions versus USD in 2013
Source: M&G, Bloomberg, August 2013
To
tal re
turn
SGD
KRW
CAD
GBP
TWD
CHF
Currency positions can be a valuable source of returns in a
global bond fund
M&G Global Macro Bond Fund
M&G Global Macro Bond Fund
A flexible and focused global bond fund
A „go-anywhere‟ total return global bond fund
Can invest in all global fixed income asset classes and currencies
Designed to outperform the IMA Global Bond sector with lower volatility
Can go negative duration
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
11
Europe Government Bonds Europe Investment Grade Europe High Yield M&G Global Macro BondFund
All FI asset classes have inherent duration risk
In bear markets, flexibility and making the right call
are crucial
Current duration
Neutral duration
Ye
ars
Source: M&G, Merrill Lynch, August 2013
Duration range Current duration
Sector Sector Sector
AAA AA A BBB BB B
0 years
4 years
10 years
2 years
6 years
8 years
CCC
-4 years
-2 years
Credit risk
Du
rati
on
(in
tere
st
rate
ris
k)
1 Feb 2009
2 Jul 2011
4 July 2013
3 August 2012
A fully flexible global bond fund
Credit risk and typical duration range
Looking to maximise total returns by taking – or reducing –
risk when appropriate
Duration positioning over the past year
Fund positioning summary: duration
M&G Global Macro Bond Fund
Source: M&G, 31 July 2013
Ye
ars
Very short duration versus the global bond universe during the
market sell off in May and June, but have added duration recently
0
1
2
3
4
5
-10
0
10
20
30
40
50
60
70
80Asset allocation over the past year
%
Source: M&G, 31 July 2013
Fund positioning summary: asset allocation
M&G Global Macro Bond Fund
Reduction in credit risk in the first half of 2013
Developed market government bonds
Inflation-linked government bonds
Developed market corporates
Inflation-linked corporates
Financials
Emerging market government bonds
Emerging market corporates
Government bonds Corporate bonds Emerging market bonds
Selected currency exposure over the past year
Source: M&G, 31 July 2013
Fund positioning summary: currency
M&G Global Macro Bond Fund
We have recently taken profits on our long USD position, while we
have a neutral allocation to sterling
-15%
5%
25%
45%
65%
85%
Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13
USD
EM currencies
GBP
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Prices may fluctuate and you may not get back your original investment.
For Financial Advisers only. Not for onward distribution. No other persons should rely on any information contained within. This Financial Promotion is issued by M&G
Securities Limited which is authorised and regulated by the Financial Services Authority and provides investment products. The registered office is Laurence Pountney Hill, London,
EC4R 0HH. Registered in England No. 90776