Managed Funds

Global fixed interest August performance

The median 1 month performance in the YieldReport survey of global bond funds was +0.69% (previously +0.48%). and the median return over the last 12 months was 2.09% (previously 1.82%).

August started off fairly quietly. June U.S. core PCE inflation was generally in line with expectations but a bit on the soft side. Non-farm payrolls were better than expected.  Geopolitical issues then took over and economic issues generally took a back seat. Yields were driven lower by safe-haven buying as North Korea and the U.S. traded unkind words. Weak U.S. producer price index (PPI) figures then added another reason to buy bonds as did soft U.S July CPI figures.

New York Fed president Dudley switched markets to “risk on” when he said he expected another rate rise this year and strong U.S. July retail sales figures added fuel to that particular fire. However, the rise in yields was temporarily. Minutes of July FOMC meeting were released and the markets found out some members thought the Fed’s inflation models were “not particularly useful” in the current economic set-up. Procrastination with regards to balance sheet reduction began to sound dovish and bond yields fell. Publication of the ECB’s June minutes added extra pressure in this direction because they indicated ECB officials were worried “about the risk of the exchange rate overshooting in the future” which markets interpreted as ECB resistance to higher rates.

August was another month favourable to global bond funds as yields in major markets fell and the Australian dollar was lower against major currencies except for sterling. 38 of 43 funds in the YieldReport survey produced a positive return.

By the end of the month 10 year bond yields were lower in all major markets. Yields on U.S. and German 10 year bonds both fell 18bps to 2.12% and 0.36% respectively, U.K yields dropped 19bps to 1.04%, French yields decreased by 15bps to 0.66%. In keeping with recent behaviour, Italian yields fell but only by 5bps to 2.04%. The Aussie dollar dropped against the USD, euro and yen but it was slightly firmer against sterling.

The best performing global fund for August in the YieldReport survey was the Dimensional Global Bond Trust. Its return of 1.19% follows a slightly-above-average return in July (+0.53%) and a worst-of-the-worst result in June (-0.76%). The second-highest return was produced by PIMCO’s Global Bond Wholesale fund which returned 0.81%.

In terms of rankings for fund performance for the twelve months to August 2017, the Bentham Wholesale High Yield fund was displaced from the top spot by the Legg Mason Macro Opportunities Bond Fund with a return of 11.28%. This fund did well out of exposures to U.S. Treasury bonds, emerging market debt and currencies exposures to Russian roubles and Argentinian pesos.

GLOBAL BOND FUNDS