The median 1 month performance in the YieldReport survey of global bond funds was -0.24% (previously +0.13%) while the median return over the last 12 months was 4.11% (previously 3.90%).
January was a tough month for global bond funds generally as bond yields moved higher and the AUD strengthened against the USD. Life was a little easier for funds with an unhedged exposure to European currencies as the local currency weakened against the euro and sterling. 16 of 43 funds in the YieldReport survey produced positive returns for the month.
Yields in advanced-economy bond markets finished January significantly higher. U.S. 2 year bond yields rose by 26bps to 2.14%, 10 year bond yields increased by 30bps to 2.71% and U.S. 30 year bonds gained 20bps to 2.94%. In European markets, German 10 year bund yields increased by 27bps to 0.69%, French 10 year yields increased by 19bps to 0.97% and U.K 10 year gilts leapt 32bps to 1.51%. This month Italian bonds were the odd ones out and 10 year yields only rose by 3bps to 2.02%.
After the first week of January, yields began to rise. U.S. data such as JOLTS, non-farm payrolls, CPI and retail sales figures supported, or at least did not hinder, the prospect of tighter monetary policy, although various Fed officials have recently offered opposing views with respect to the speed of “normalisation”.
Around the middle of the month, U.S bond yields moved higher across a (steeper) curve in the presence of positive U.S data, despite the see-sawing state of congressional budget negotiations and a potential government shutdown. In Europe, 10 year bond yields were flat or lower as the ECB indicated it was unlikely to change course just yet. There was also a hint of moving away from U.S. bonds in favour of European bonds.
Towards the end of the month yields dropped back a little after U.S Q4 GDP data was released. In Europe, 10 year bond yields were higher as the ECB held its official rate steady and after ECB chief Mario Draghi indicated Eurozone growth was robust and “more than expected”. Even so, the ECB will still buy €30 billion worth of bonds each month until September, or even beyond.
The best performing global fund for the month in the YieldReport survey was the Legg Mason Brandywine Global Fixed Income Fund. Its return of 2.12% follows on from an excellent result in the December survey (+0.78%) and a near median-type return in November (+0.12%). The second-highest return of 2.04% was produced by the Legg Mason Brandywine Global Opportunistic Fixed Income Fund and the third highest result came from the Bentham Professional Global Income Fund (+1.78%).
In terms of fund performance for the twelve months to January 2018, the Legg Mason Western Asset Macro Opportunities Bond Fund produced the highest return (13.24%). At the time, this fund had an effective duration of 6.1 years and the average credit rating of its 403 securities is A-. Government securities accounted for 35.5% of the fund, emerging market securities 23.4%, investment-grade corporate debt 14.5% and cash and “other securities” accounted for 13.6%. High yield (7.6%) and asset-backed securities (5.4%) accounted for the balance.
GLOBAL BOND FUNDS
| GLOBAL BOND FUNDS | ASX mFund | 1m (%) | 3m (%) | 1y (%) | 3y (%) | 5y (%) |
|---|---|---|---|---|---|---|
| Advance International Fixed Interest Multi-Blend | -0.23 | -0.19 | 2.57 | 1.13 | 2.71 | |
| Alpha Diversified Income | mFund | -0.23 | -0.64 | 1.38 | 1.84 | 2.68 |
| AMP Future Directions International Bond Fund | -0.66 | -0.50 | 2.61 | 1.53 | 3.54 | |
| AMP Capital International Bond | -0.62 | -0.37 | 3.14 | 2.05 | 4.08 | |
| ANZ-CFS Global Credit Income EF | 0.57 | 0.68 | 3.76 | 3.28 | 3.46 | |
| Bentham Professional Global Income | mFund | 1.78 | 2.93 | 8.83 | 6.59 | 7.10 |
| Bentham Wholesale High Yield | mFund | 0.23 | 0.63 | 7.78 | 7.76 | 7.65 |
| Bentham Syndicated Loan ASX Class | mFund | 0.99 | 1.50 | 6.57 | 6.78 | 6.67 |
| Kapstream Wholesale Absolute Return Income | mFund | 0.36 | 0.80 | 3.56 | 2.92 | 3.54 |
| BlackRock Monthly Income | 1.01 | 1.50 | 6.27 | 4.44 | 5.53 | |
| BlackRock Wholesale International Bond | -0.34 | 0.00 | 3.86 | 3.10 | 5.01 | |
| BT Global Fixed Interest Wholesale | -0.58 | -0.47 | 1.96 | 1.30 | 4.05 | |
| BT Institutional Enhanced Global Fixed Interest | -0.57 | -0.47 | 2.12 | 1.47 | 4.23 | |
| CFS Wholesale Global Bond | -0.57 | -0.22 | 2.37 | 1.95 | 3.90 | |
| CFS Wholesale Global Corporate Bond | -0.34 | 0.07 | 5.30 | 4.17 | 5.74 | |
| Dimensional Five-Year Diversified Fixed Interest | -0.63 | -0.78 | 1.62 | 2.50 | 3.41 | |
| Dimensional Global Bond Trust | -1.20 | -0.93 | 3.15 | 3.06 | ||
| Dimensional Two-Year Diversified Fixed Interest | -0.12 | -0.22 | 1.28 | 2.01 | 2.46 | |
| Franklin Templeton Global Aggregate Bd W | -0.24 | 0.11 | 2.45 | 0.94 | ||
| Franklin Templeton Multisector Bond I | 1.47 | 0.85 | 5.14 | 2.70 | 3.36 | |
| GAM Absolute Return Bond (AU) | 0.73 | 0.53 | 4.95 | 4.64 | 3.05 | |
| Invesco Wholesale Senior Secured Income | mFund | 0.87 | 1.44 | 4.45 | 5.67 | 4.39 |
| Legg Mason Brandywine Global Opp Fixed Income A | mFund | 2.04 | 2.51 | 7.91 | 3.00 | 5.81 |
| Legg Mason Brandywine Global Fixed Income A | 2.12 | 3.04 | 7.85 | 2.39 | 5.54 | |
| Legg Mason Western Asset Global Bond Fund | -0.19 | 0.30 | 6.79 | n/a | n/a | |
| Legg Mason Western Asset Macro Opportunities Bond Fund | 0.45 | 2.50 | 13.24 | n/a | n/a | |
| Macquarie Global Bond | -0.66 | -0.45 | 1.59 | 1.36 | 3.85 | |
| Macquarie Global Income Opportunities Fd | 0.16 | 0.53 | 4.60 | 3.31 | 3.52 | |
| Mercer Global Credit Fund | -0.54 | -0.01 | 4.63 | 3.58 | 5.25 | |
| Mercer Global Sovereign Bond Fund | -0.17 | -0.13 | 4.47 | 3.30 | 5.53 | |
| Nikko AM International Bond | -1.03 | -0.72 | 2.34 | 2.35 | 4.64 | |
| Omega Global Corporate Bond | -0.67 | -0.46 | 4.11 | 3.24 | 3.83 | |
| PIMCO Global Bond Wholesale | mFund | -0.33 | -0.13 | 4.66 | 3.90 | 5.23 |
| PIMCO Global Credi Wholesale | mFund | -0.69 | -0.44 | 4.31 | 3.76 | 5.01 |
| PIMCO Diversified Fixed Interest Wholesale | mFund | -0.29 | -0.05 | 3.70 | 3.17 | 4.60 |
| PIMCO Unconstrained Bond Wholesale | mFund | 0.31 | 0.47 | 4.55 | 3.84 | N/A |
| State Street SSgA Global Fixed Income | -0.70 | -0.41 | 2.49 | 2.48 | 4.13 | |
| T.Rowe Price Dynamic Global Bond Fund | 0.42 | 0.38 | -0.15 | 4.32 | ||
| Templeton Global Bond Plus W | 1.31 | 0.42 | 4.18 | 1.39 | 2.13 | |
| UBS Global Credit Fund | -0.58 | -0.08 | 5.45 | 3.85 | 5.42 | |
| UBS International Bond | -0.49 | -0.20 | 3.58 | 2.95 | 4.54 | |
| Vanguard International Credit Securities Index Hdg | -0.67 | -0.21 | 4.40 | 3.38 | 4.82 | |
| Vanguard International Fixed Interest Index Hdg | -0.57 | -0.29 | 2.53 | 2.60 | 4.59 |
*End of January 2018. Returns in AUD after fees.