Global Bond Funds September 2019

Conditions were challenging for Australian investors in global bond funds in September. US Treasury bond yields increased substantially across the curve while other sovereign bond yields also generally rose. The Aussie dollar was weaker against the euro and the yen, fairly stable against the US dollar and a little higher against sterling.

In spite of this background, 16 of the 40 funds in the YieldReport survey finished the month with a positive return and one of these 16 funds produced a return above 1.0% for the month. Of the 24 funds which produced negative returns, only one of them produced a return of less than -1.0%.

The median 1 month performance in the YieldReport survey of global bond funds in September was -0.25% (August: +1.59%) while the median return over the 12 months including September came to +8.73% (August: +8.87%). The Barclays Global Aggregate Bond Index, a widely-used index in this sector, returned -0.58% in September and +10.19% over the rolling year when calculated in Australian dollars.

In US markets, by the end of the month, 2-year Treasury bond yields had increased by 12bps to 1.63% while 10-year and 30-year yields had both gained 17bps to 1.68% and 2.13% respectively. In other advanced-economy markets, German 10-year bund yields finished 13bps higher at -0.57%, UK 10-year yields were unchanged at 0.41% and French 10-year yields moved 13bps higher to -0.28%. Italian 10-year yields dropped another 21bps to 0.82%.

(For a more detailed view of the influences on Australian and offshore yields during the month, click here)

The best performing global fund for the month in the YieldReport September survey was the Legg Mason Western Asset Macro Opportunities Bond Fund. It produced a return of 3.17% for the month, following a near-worst-in-class performance in August (-2.30%) and a worst-in-class performance in July (-0.78%).

According to the manager, at the end of September the fund had 22% of its assets in the US, 9% in Russia, 8% in Mexico, 7% in Brazil and the balance spread throughout the world. Just over 60% of the fund is in “investment grade” assets. Although the fund’s effective duration was 4.9 years, a good chunk of the fund (18%) was in cash or very short-term securities.

The second-highest return was produced by another Legg Mason fund, the Brandywine Global Opportunistic Fixed Income Fund. Its return of +0.52% followed bottom-quartile performances in August (-0.32%) and July (+0.01%).

In terms of fund performance for the twelve months to the end of September 2019, Macquarie’s Core Plus Australian Fixed Interest fund retained its position as the highest-returning fund for the period with a return of 14.50%, up from its comparable figure of 14.30% in August. The Legg Mason Western Asset Macro Opportunities Bond Fund’s 12.01% return made it the second nest performer over this time period.

GLOBAL BOND FUNDS

GLOBAL BOND FUNDS	ASX mFund	1m (%)	3m (%)	1y (%)	3y (%)	5y (%)
Advance International Fixed Interest Multi-Blend		-0.52	2.02	7.73	2.43	2.79
Alpha Diversified Income	mFund	0.04	2.03	7.54	3.45	3.53
AMP Future Directions International Bond Fund		-0.56	2.10	8.55	2.70	3.50
AMP Capital International Bond		-0.52	2.23	9.08	3.22	4.03
ANZ-CFS Global Credit Income EF		0.16	0.19	1.12	2.38	2.13
Ardea Real Outcome Fund		0.29	2.06	9.35	5.93	4.29
Bentham Professional Global Income	mFund	0.29	0.41	-0.27	5.09	4.00
Bentham Wholesale High Yield	mFund	0.34	1.60	6.49	6.47	6.19
Bentham Syndicated Loan ASX Class	mFund	0.39	0.56	0.90	4.86
Kapstream Wholesale Absolute Return Income	mFund	-0.07	0.65	3.45	2.91	3.04
BlackRock Wholesale International Bond		-0.73	2.25	10.27	3.51	4.63
Pendal Enhanced Global Fixed Interest (Wholesale)		-0.89	2.98	10.66	2.82	4.56
CFS Wholesale Global Bond		-0.73	1.96	8.92	2.27	3.74
CFS Wholesale Global Corporate Bond		-0.79	2.28	9.79	4.08	5.03
Dimensional Five-Year Diversified Fixed Interest		-0.21	0.54	4.55	2.13	3.34
Dimensional Global Bond Trust		-0.67	2.51	11.44	4.14
Dimensional Two-Year Diversified Fixed Interest		0.02	0.36	3.01	1.92	2.22
Franklin Templeton Global Aggregate Bd W		-0.30	2.73	11.09	2.95
Franklin Templeton Multisector Bond I		0.28	-7.66	-3.43	1.32	-0.10
Invesco Wholesale Senior Secured Income	mFund	0.18	0.36	1.44	4.03	4.35
Legg Mason Brandywine Global Opp Fixed Income A	mFund	0.52	0.21	5.90	3.24	3.74
Legg Mason Brandywine Global Fixed Income A		0.49	0.33	5.35	3.69	3.78
Legg Mason Western Asset Global Bond Fund		0.00	2.37	9.19	n/a	n/a
Legg Mason Western Asset Macro Opportunities Bond Fund		3.17	0.01	12.01	5.54	n/a
Macquarie Global Income Opportunities Fd		0.22	1.18	5.70	3.87	3.27
Macquarie Core Plus Australian Fxd Intr		-0.48	2.53	14.50	5.58	5.66
Mercer Global Credit Fund		-0.49	2.28	10.12	3.72	4.87
Mercer Global Sovereign Bond Fund		0.15	4.20	11.90	4.97	6.04
Omega Global Corporate Bond		-0.95	2.26	9.20	3.05	4.28
PIMCO Global Bond Wholesale	mFund	-0.61	1.70	8.19	4.00	5.26
PIMCO Global Credi Wholesale	mFund	-0.29	1.54	8.23	3.70	4.85
PIMCO Diversified Fixed Interest Wholesale	mFund	-0.50	1.70	9.18	4.09	5.09
PIMCO Unconstrained Bond Wholesale	mFund	0.22	-1.02	1.97	3.78	2.95
State Street SSgA Global Fixed Income		-0.71	2.82	10.80	3.40	4.41
T.Rowe Price Dynamic Global Bond Fund		-0.02	-2.26	-0.55	0.07
Templeton Global Bond Plus W		0.49	-2.48	2.54	3.75	0.88
UBS Global Credit Fund		-0.51	2.17	10.22	4.33	5.16
UBS International Bond		-0.66	2.04	8.94	3.39	4.66
Vanguard International Credit Securities Index Hdg		-1.25	1.90	9.71	3.91	4.88
Vanguard International Fixed Interest Index Hdg		-0.93	2.47	10.02	3.29	4.83