Conditions were very favourable for Australian investors in global bond funds, as yields dropped in the US and Europe and the Aussie dollar weakened against all other major currencies. However, not all funds were not able to take advantage of the conditions and, of the 39 funds in the YieldReport survey, 7 finished the month with a negative return.
The median 1-month performance in the YieldReport survey of global bond funds was +1.01% (previously +0.12%) while the median return over the previous 12 months was +0.45% (November: -0.28%). The Barclays Global Aggregate Bond Index, a widely-used index in this sector, returned +1.44% in December and +1.55% over the previous 12 months when calculated in Australian dollars.
In US markets, 2-year Treasury bond yields dropped by 28bps to 2.50%, 10-year yields shed 31bps to 2.68% and 30-year yields dropped by 28bps to 3.01%. In other advanced-economy markets, German and UK 10-year yields each lost 7bps to 0.24% and 1.14% respectively while French 10-year yields gained 3bps to 0.71%. Italian 10-year yields dropped by a massive 46bps to 2.74% after the Italian Government and the EU reached an agreement on Italy’s 2019 budget.
The best performing global fund for the month in the YieldReport December survey was the Legg Mason Western Asset Macro Opportunities Bond Fund. Its return of +3.74% follows a top-performing performance in November (+1.00%) and a near worst-in-class performance in October (-2.25%).
The second-highest December return was produced by Mercer’s Global Sovereign Bond Fund 2.47%. Its return of 2.47% for the month came after a solid performance in November (+0.47%) and a bottom quartile return in October (-1.05%)
In terms of fund performance for the twelve months to December 2018, the Mercer Global Sovereign Bond Fund pushed the Bentham Professional Syndicated Loan fund out of the top spot. Mercer had a great month (see above) which helped produce a 12-month return of 3.78% while the Bentham fund had quite an awful one which drove it 12-month return down considerably.
The second-highest return was produced by the Vanguard International Fixed Interest Index Fund. This fund returned 2.39% in the 12 months to December.
GLOBAL BOND FUNDS
| GLOBAL BOND FUNDS | ASX mFund | 1m (%) | 3m (%) | 1y (%) | 3y (%) | 5y (%) |
|---|---|---|---|---|---|---|
| Advance International Fixed Interest Multi-Blend | 1.29 | 0.36 | -0.72 | 1.48 | 2.45 | |
| Alpha Diversified Income | mFund | 0.91 | -0.08 | 1.73 | 2.21 | 2.86 |
| AMP Future Directions International Bond Fund | 1.26 | 0.98 | 0.18 | 2.32 | 3.37 | |
| AMP Capital International Bond | 1.30 | 1.12 | 0.69 | 2.84 | 3.90 | |
| ANZ-CFS Global Credit Income EF | -0.94 | -1.86 | -0.86 | 2.75 | 2.19 | |
| Bentham Professional Global Income | mFund | -1.56 | -2.50 | 0.71 | 5.56 | 4.60 |
| Bentham Wholesale High Yield | mFund | -1.60 | -3.67 | -2.64 | 6.80 | 5.12 |
| Bentham Syndicated Loan ASX Class | mFund | -2.43 | -3.48 | 0.22 | 5.95 | 4.86 |
| Kapstream Wholesale Absolute Return Income | mFund | 0.10 | 0.33 | 2.03 | 2.86 | 3.13 |
| BlackRock Wholesale International Bond | 1.52 | 1.54 | 0.45 | 3.04 | 4.43 | |
| BT Global Fixed Interest Wholesale | 1.72 | 1.96 | 1.39 | 2.48 | 4.14 | |
| BT Institutional Enhanced Global Fixed Interest | 1.74 | 2.01 | 1.57 | 2.65 | 4.32 | |
| CFS Wholesale Global Bond | 1.07 | 0.88 | -0.43 | 1.74 | 3.29 | |
| CFS Wholesale Global Corporate Bond | 1.08 | -0.24 | -1.66 | 4.02 | 4.68 | |
| Dimensional Five-Year Diversified Fixed Interest | 0.61 | 1.19 | 1.66 | 2.69 | 3.40 | |
| Dimensional Global Bond Trust | 1.00 | 1.37 | 1.39 | 3.80 | n/a | |
| Dimensional Two-Year Diversified Fixed Interest | 0.51 | 0.82 | 1.67 | 1.92 | 2.23 | |
| Franklin Templeton Global Aggregate Bd W | 2.01 | 0.53 | 0.95 | 1.15 | n/a | |
| Franklin Templeton Multisector Bond I | -0.40 | 2.14 | -0.50 | 3.15 | 1.95 | |
| Invesco Wholesale Senior Secured Income | mFund | -2.53 | -3.74 | -0.11 | 5.17 | 3.66 |
| Legg Mason Brandywine Global Opp Fixed Income A | mFund | 0.93 | -1.07 | -2.50 | 3.72 | 4.52 |
| Legg Mason Brandywine Global Fixed Income A | 0.92 | -1.19 | -1.05 | 3.68 | 4.66 | |
| Legg Mason Western Asset Global Bond Fund | 1.74 | 0.91 | -0.69 | n/a | n/a | |
| Legg Mason Western Asset Macro Opportunities Bond Fund | 3.74 | 2.42 | -5.42 | n/a | n/a | |
| Macquarie Global Income Opportunities Fd | 0.15 | -0.43 | 0.01 | 2.93 | 2.71 | |
| Mercer Global Credit Fund | 1.18 | 0.45 | -1.06 | 3.42 | 4.43 | |
| Mercer Global Sovereign Bond Fund | 2.47 | 1.66 | 3.78 | 4.27 | 5.82 | |
| Omega Global Corporate Bond | 1.40 | 0.91 | -0.42 | 3.11 | 3.93 | |
| PIMCO Global Bond Wholesale | mFund | 0.83 | 0.56 | 0.80 | 4.28 | 5.44 |
| PIMCO Global Credi Wholesale | mFund | 0.89 | 0.59 | 0.13 | 3.61 | 4.71 |
| PIMCO Diversified Fixed Interest Wholesale | mFund | 1.01 | 1.10 | 2.14 | 3.80 | 4.90 |
| PIMCO Unconstrained Bond Wholesale | mFund | 0.10 | 0.03 | 1.21 | 4.27 | n/a |
| State Street SSgA Global Fixed Income | 1.60 | 2.21 | 2.19 | 3.18 | 4.19 | |
| T.Rowe Price Dynamic Global Bond Fund | 1.17 | 1.35 | 1.41 | 2.46 | n/a | |
| Templeton Global Bond Plus W | -0.37 | 1.82 | 1.51 | 2.71 | 1.80 | |
| UBS Global Credit Fund | 0.99 | -0.75 | -2.05 | 3.89 | 4.47 | |
| UBS International Bond | 1.32 | 1.17 | 1.25 | 3.42 | 4.56 | |
| Vanguard International Credit Securities Index Hdg | 1.13 | 0.50 | -0.21 | 3.65 | 4.48 | |
| Vanguard International Fixed Interest Index Hdg | 1.39 | 2.18 | 2.39 | 3.28 | 4.73 |
*End of December 2018. Returns in AUD after fees.