Conditions were exceptionally positive for Australian investors in global bond funds in August. US Treasury bond yields plunged across the curve while other sovereign bond yields fell significantly. The Aussie dollar weakened against all major currencies.
Despite the positive environment, only 29 of the 40 funds in the YieldReport survey finished the month with a positive return. 12 of these funds produced a return above 2.0% for the month. However, of the 11 funds which produced negative returns, five of them produced returns under -1.0%.
The median 1 month performance in the YieldReport survey of global bond funds in August was 1.59% (July: +0.62%) while the median return over the previous 12 months came to +8.87% (July: +7.31%). The Barclays Global Aggregate Bond Index, a widely-used index in this sector, returned 2.32% in August and +10.40% over the previous 12 months when calculated in Australian dollars.
In US markets, by the end of the month, 2-year Treasury bond yields had finished 36bps lower at 1.51% while the 10-year yield had dropped by 50bps to 1.51% and the 30-year yield had plunged 57bps to 1.96%. In other advanced-economy markets, German 10-year bund yields had fallen by 26bps to -0.70%, UK 10-year yields had lost 20bps to 0.41% and French 10-year yields moved 23bps further into negative territory at -0.41%. Italian 10-year yields plunged another 51bps to 1.03%.
(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 August survey was the Pendal Enhanced Global Fixed Interest (Wholesale) fund. It produced a return of 3.09% for the month, following a second-quartile performance in July (+0.80%) and a slightly-above-median performance in June (+1.45%).
According to the manager, at the end of August the fund had 40% of its assets in the US, 20% in Japan and the balance spread among western European countries. Much of the fund’s performance came from duration or, to put it another way, from prices gains made on bonds when prevailing interest rates fall.
The second-highest return was produced by State Street’s Global Fixed Income Index Trust. Its return of +2.84% followed a second-quartile performance in July (+0.70%) and a median performance in June (-1.31%).
In terms of fund performance for the twelve months to the end of August 2019, Macquarie’s Core Plus Australian Fixed Interest fund retained its position as the highest-returning fund for the month with a return of 14.3%, up from its comparable figure of 13.1% in July. Mercer’s Global Sovereign Bond Fund pushed the Dimensional Global Bond Trust aside as the next-highest performing fund (+12.62%).
GLOBAL BOND FUNDS
| GLOBAL BOND FUNDS | ASX mFund | 1m (%) | 3m (%) | 1y (%) | 3y (%) | 5y (%) |
|---|---|---|---|---|---|---|
| Advance International Fixed Interest Multi-Blend | 1.91 | 3.89 | 8.01 | 2.48 | 2.87 | |
| Alpha Diversified Income | mFund | 0.50 | 3.01 | 8.15 | 3.41 | 3.50 |
| AMP Future Directions International Bond Fund | 2.07 | 3.95 | 8.64 | 2.88 | 3.56 | |
| AMP Capital International Bond | 2.11 | 4.07 | 9.17 | 3.40 | 4.09 | |
| ANZ-CFS Global Credit Income EF | -0.38 | 0.56 | 1.21 | 2.35 | 2.02 | |
| Ardea Real Outcome Fund | 1.19 | 2.85 | 9.28 | 5.89 | 4.18 | |
| Bentham Professional Global Income | mFund | -0.09 | 0.37 | 0.31 | 5.25 | 4.15 |
| Bentham Wholesale High Yield | mFund | 0.66 | 3.28 | 6.69 | 6.53 | 5.90 |
| Bentham Syndicated Loan ASX Class | mFund | -0.25 | 0.28 | 1.34 | 4.98 | n/a |
| Kapstream Wholesale Absolute Return Income | mFund | 0.30 | 1.04 | 3.64 | 3.00 | 3.11 |
| BlackRock Wholesale International Bond | 2.38 | 4.65 | 10.63 | 3.81 | 4.81 | |
| Pendal Enhanced Global Fixed Interest (Wholesale) | 3.09 | 5.42 | 10.61 | 3.13 | 4.79 | |
| CFS Wholesale Global Bond | 1.97 | 4.42 | 9.29 | 2.50 | 3.91 | |
| CFS Wholesale Global Corporate Bond | 2.23 | 5.34 | 10.30 | 4.33 | 5.01 | |
| Dimensional Five-Year Diversified Fixed Interest | 0.45 | 1.26 | 4.52 | 2.25 | 3.34 | |
| Dimensional Global Bond Trust | 1.95 | 4.83 | 11.46 | 4.40 | n/a | |
| Dimensional Two-Year Diversified Fixed Interest | 0.23 | 0.61 | 2.99 | 1.97 | 2.27 | |
| Franklin Templeton Global Aggregate Bd W | 1.75 | 5.30 | 11.73 | 2.87 | n/a | |
| Franklin Templeton Multisector Bond I | -9.36 | -6.35 | -1.66 | 0.90 | -0.32 | |
| Invesco Wholesale Senior Secured Income | mFund | -0.23 | 0.35 | 1.98 | 4.39 | 4.22 |
| Legg Mason Brandywine Global Opp Fixed Income A | mFund | -0.32 | 2.04 | 6.99 | 3.13 | 3.72 |
| Legg Mason Brandywine Global Fixed Income A | -0.08 | 1.77 | 6.34 | 3.51 | 3.79 | |
| Legg Mason Western Asset Global Bond Fund | 1.94 | 4.24 | 9.09 | n/a | n/a | |
| Legg Mason Western Asset Macro Opportunities Bond Fund | -2.30 | 0.13 | 9.25 | 4.28 | n/a | |
| Macquarie Global Income Opportunities Fd | 0.50 | 2.00 | 5.54 | 3.82 | 3.24 | |
| Macquarie Core Plus Australian Fxd Intr | 1.99 | 4.68 | 14.31 | 5.54 | 5.70 | |
| Mercer Global Credit Fund | 2.01 | 4.48 | 10.23 | 3.92 | 4.84 | |
| Mercer Global Sovereign Bond Fund | 2.70 | 5.72 | 12.62 | 4.88 | 6.14 | |
| Omega Global Corporate Bond | 2.60 | 4.72 | 9.58 | 3.48 | 4.45 | |
| PIMCO Global Bond Wholesale | mFund | 1.73 | 3.54 | 8.61 | 4.30 | 5.31 |
| PIMCO Global Credi Wholesale | mFund | 1.30 | 3.16 | 8.15 | 3.82 | 4.86 |
| PIMCO Diversified Fixed Interest Wholesale | mFund | 1.44 | 3.36 | 9.40 | 4.26 | 5.15 |
| PIMCO Unconstrained Bond Wholesale | mFund | -1.15 | -0.68 | 1.92 | 3.54 | 2.92 |
| State Street SSgA Global Fixed Income | 2.84 | 4.92 | 11.07 | 3.65 | 4.56 | |
| T.Rowe Price Dynamic Global Bond Fund | -1.87 | -3.03 | 0.18 | 0.07 | n/a | |
| Templeton Global Bond Plus W | -4.42 | -1.65 | 4.04 | 3.23 | 0.71 | |
| UBS Global Credit Fund | 1.81 | 5.01 | 10.61 | 4.47 | 5.14 | |
| UBS International Bond | 2.07 | 4.06 | 9.34 | 3.60 | 4.76 | |
| Vanguard International Credit Securities Index Hdg | 2.38 | 4.94 | 10.72 | 4.33 | 5.05 | |
| Vanguard International Fixed Interest Index Hdg | 2.60 | 4.61 | 10.52 | 3.59 | 5.04 |
*End of Aug 2019. Returns in AUD after fees.