Conditions were quite positive for Australian investors in global bond funds in July. Although US Treasury bond yields increased at the short end, longer-term yields remained largely unchanged. Other sovereign bond yields fell by noticeable amounts and the Aussie dollar weakened against the major currencies with the exception of sterling.
36 of the 40 funds in the YieldReport survey finished the month with a positive return. 7 of these funds produced a return above 1.0% for the month but unlike June, none of those returns exceeded 2.0%.
The median 1 month performance in the YieldReport survey of global bond funds in July was 0.62% (June: +1.31%) while the median return over the previous 12 months came to +7.31% (June: +6.71%). The Barclays Global Aggregate Bond Index, a widely-used index in this sector, returned 0.73% in July and +8.25% 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 12bps higher at 1.87% while 10-year and 30-year yields remained unchanged at 2.01% and 2.53% respectively. In other advanced-economy markets, German 10-year bund yields had fallen by 12bps to -0.44%, UK 10-year yields had lost 22bps to 0.61% and French 10-year yields finished further in negative territory at -0.18%. Italian 10-year yields plunged again, this time by 55bps to 1.54%.
(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 July survey was the Franklin Templeton Multisector Bond (Institutional) fund. It produced a return of 1.59% for the month, following a top-quartile performance in June (+1.71%) and a “worst-in-class” performance in May (-2.02%).
According to the manager, at the end of July the fund’s average credit rating was BBB+ with large exposures to Mexico, Brazil, Indonesia, Thailand and Argentina. Half of the fund’s assets were denominated in US dollars, along with a 25% exposure to Japanese yen and some emerging-market currencies. Short positions were also present against the Aussie dollar and euro.
The second-highest return was produced by Templeton Global Bond Plus Wholesale fund. Its return of +1.53% followed a near-median performance in June (+1.34%) and a near “worst-in-class” performance in May (-1.05%).
In terms of fund performance for the twelve months to the end of July 2019, Macquarie’s Core Plus Australian Fixed Interest fund retained its position as the highest-returning fund for the month with a return of 13.1%, up from its comparable figure of 12.4% in June. The Dimensional Global Bond Trust was the next-highest performing fund (+10.04%).
GLOBAL BOND FUNDS
| GLOBAL BOND FUNDS | ASX mFund | 1m (%) | 3m (%) | 1y (%) | 3y (%) | 5y (%) |
|---|---|---|---|---|---|---|
| Advance International Fixed Interest Multi-Blend | 0.63 | 3.07 | 5.63 | 1.89 | 2.67 | |
| Alpha Diversified Income | mFund | 1.48 | 3.42 | 7.81 | 3.43 | 3.52 |
| AMP Future Directions International Bond Fund | 0.60 | 3.06 | 6.74 | 2.21 | 3.41 | |
| AMP Capital International Bond | 0.64 | 3.18 | 7.27 | 2.73 | 3.94 | |
| ANZ-CFS Global Credit Income EF | 0.26 | 0.21 | 1.56 | 2.73 | 2.13 | |
| Ardea Real Outcome Fund | 0.58 | 2.59 | 7.89 | 5.57 | 4.02 | |
| Bentham Professional Global Income | mFund | 0.21 | -0.43 | 0.63 | 5.83 | 4.08 |
| Bentham Wholesale High Yield | mFund | 0.60 | 1.35 | 6.71 | 6.97 | 6.01 |
| Bentham Syndicated Loan ASX Class | mFund | 0.42 | 0.09 | 1.99 | 5.48 | |
| Kapstream Wholesale Absolute Return Income | mFund | 0.41 | 1.15 | 3.68 | 3.08 | 3.11 |
| BlackRock Wholesale International Bond | 0.60 | 3.60 | 8.04 | 3.11 | 4.56 | |
| Pendal Enhanced Global Fixed Interest (Wholesale) | 0.80 | 4.51 | 7.47 | 2.03 | 4.49 | |
| CFS Wholesale Global Bond | 0.72 | 3.35 | 7.42 | 1.77 | 3.75 | |
| CFS Wholesale Global Corporate Bond | 0.85 | 3.87 | 8.32 | 3.78 | 4.87 | |
| Dimensional Five-Year Diversified Fixed Interest | 0.31 | 1.35 | 4.53 | 2.09 | 3.44 | |
| Dimensional Global Bond Trust | 1.22 | 4.29 | 10.04 | 3.81 | ||
| Dimensional Two-Year Diversified Fixed Interest | 0.10 | 0.69 | 3.07 | 1.94 | 2.28 | |
| Franklin Templeton Global Aggregate Bd W | 1.27 | 4.66 | 9.46 | 2.39 | ||
| Franklin Templeton Multisector Bond I | 1.59 | 1.24 | 2.78 | 4.80 | 1.90 | |
| Invesco Wholesale Senior Secured Income | mFund | 0.41 | 0.08 | 2.60 | 4.66 | 4.43 |
| Legg Mason Brandywine Global Opp Fixed Income A | mFund | 0.01 | 3.06 | 4.28 | 3.21 | 4.22 |
| Legg Mason Brandywine Global Fixed Income A | -0.07 | 2.66 | 3.76 | 3.57 | 4.33 | |
| Legg Mason Western Asset Global Bond Fund | 0.42 | 3.09 | 6.72 | n/a | n/a | |
| Legg Mason Western Asset Macro Opportunities Bond Fund | -0.78 | 2.64 | 7.81 | n/a | n/a | |
| Macquarie Global Income Opportunities Fd | 0.47 | 1.69 | 5.29 | 3.91 | 3.19 | |
| Macquarie Core Plus Australian Fxd Intr | 1.01 | 4.77 | 13.14 | 5.21 | 5.51 | |
| Mercer Global Credit Fund | 0.75 | 3.38 | 8.44 | 3.40 | 4.72 | |
| Mercer Global Sovereign Bond Fund | 1.30 | 4.18 | 8.85 | 4.06 | 5.99 | |
| Omega Global Corporate Bond | 0.63 | 3.56 | 7.48 | 2.78 | 4.12 | |
| PIMCO Global Bond Wholesale | mFund | 0.58 | 3.02 | 6.88 | 3.84 | 5.26 |
| PIMCO Global Credi Wholesale | mFund | 0.53 | 2.82 | 7.36 | 3.53 | 4.85 |
| PIMCO Diversified Fixed Interest Wholesale | mFund | 0.76 | 3.34 | 8.30 | 3.93 | 5.09 |
| PIMCO Unconstrained Bond Wholesale | mFund | -0.08 | 0.59 | 3.01 | 4.15 | 3.36 |
| State Street SSgA Global Fixed Income | 0.70 | 3.72 | 8.07 | 2.59 | 4.28 | |
| T.Rowe Price Dynamic Global Bond Fund | -0.38 | 1.06 | 0.98 | 0.79 | ||
| Templeton Global Bond Plus W | 1.53 | 1.82 | 4.63 | 4.82 | 1.89 | |
| UBS Global Credit Fund | 0.86 | 3.62 | 9.04 | 4.06 | 5.07 | |
| UBS International Bond | 0.63 | 3.05 | 7.44 | 2.95 | 4.62 | |
| Vanguard International Credit Securities Index Hdg | 0.79 | 3.62 | 8.65 | 3.67 | 4.86 | |
| Vanguard International Fixed Interest Index Hdg | 0.81 | 3.55 | 7.80 | 2.68 | 4.78 |
*End of July 2019. Returns in AUD after fees.