Conditions in March turned ugly for Australian investors in global bonds despite lower US Treasury yields and favourable exchange rate movements. US Treasury bond yields plunged all along the curve for a third consecutive month while UK gilt yields fell moderately. However, sovereign bond yields in major euro-zone markets increased substantially. The Aussie dollar was several percent weaker against the US dollar, the euro and the yen.
Unlike January and February, the majority of funds in the survey finished the month in the red. Only 3 of the 39 funds in the YieldReport survey finished the month with a positive return. Of the 36 funds which produced negative returns, four of them produced a return of -10.0% or less.
The median 1 month performance in the YieldReport survey of global bond funds in March was -4.29% (February: +0.59%) while the median return over the 12 months including March came to +1.55% (February: +8.58%). The Barclays Global Aggregate Bond Index, a widely-used index in this sector, returned -1.97% in March and +5.78% over the rolling year (when hedged into Australian dollars).
In US markets, by the end of the month the 2-year Treasury yield had plunged 68bps to 0.24%, the 10-year yield had dropped by 49bps to 0.66% while the 30-year yield finished 35bps lower at 1.33%.
In other major bond markets, German 10-year bund yields were 14bps higher at -0.47%, French 10-year OAT yields had gained 28bps to -0.01% and Italian 10-year government bond yield had jumped 41bps to 1.53%. The 10-year UK gilt yield went against the trend and finished the month 9bps lower at 0.35%.
The best performing global fund for the month in the YieldReport March survey, for a second consecutive month, was the T. Rowe Price Dynamic Global Bond fund. It produced another extremely good return of 2.03% for the month, following a top performance (+2.05%) in February and a worst-in-class performance (-1.55%) in January. It also had a “near-podium” performance in December (+1.96%).
The second-highest return was again produced by Pendal’s Enhanced Global Fixed Interest (Wholesale) fund. Its return of +0.20% followed a top 2 return of +1.95% in February and a top-quartile return of +2.34% in January.
In terms of fund performance for the twelve months to the end of March 2020, Pendal’s Enhanced Global Fixed Interest (Wholesale) took over from the Macquarie Core Plus Australian Fixed Interest fund as the highest performing fund. Pendal’s fund produced a 12-month return of 9.07% while the State Street Global Fixed Income Index Tracking fund took over from the UBS Global Credit Fund in second place with a return of 7.99% for the year.
GLOBAL BOND FUNDS
| GLOBAL BOND FUNDS | ASX mFund | 1m (%) | 3m (%) | 1y (%) | 3y (%) | 5y (%) |
|---|---|---|---|---|---|---|
| Advance International Fixed Interest Multi-Blend | -4.12 | -2.16 | 1.58 | 1.82 | 1.30 | |
| Alpha Diversified Income | mFund | -7.51 | -4.72 | -0.57 | 1.83 | 1.97 |
| AMP Future Directions International Bond Fund | -2.78 | 0.09 | 3.86 | 3.04 | 2.48 | |
| AMP Capital International Bond | -2.73 | 0.22 | 4.38 | 3.57 | 3.00 | |
| ANZ-CFS Global Credit Income EF | -5.55 | -6.36 | -5.14 | -1.16 | 0.10 | |
| Ardea Real Outcome Fund | -0.69 | 1.25 | 6.60 | 5.30 | 3.76 | |
| Bentham Professional Global Income | mFund | -9.30 | -9.40 | -7.39 | 0.02 | 2.09 |
| Bentham Wholesale High Yield | mFund | -13.99 | -15.11 | -9.53 | -0.36 | 2.52 |
| Bentham Syndicated Loan ASX Class | mFund | -14.68 | -15.43 | -12.60 | -1.92 | 1.25 |
| Kapstream Wholesale Absolute Return Income | mFund | -2.59 | -1.54 | 0.53 | 2.07 | 2.29 |
| BlackRock Wholesale International Bond | -4.33 | -1.88 | 2.52 | 3.02 | 3.00 | |
| Pendal Enhanced Global Fixed Interest (Wholesale) | 0.20 | 4.55 | 9.07 | 4.89 | 3.46 | |
| CFS Wholesale Global Corporate Bond | -4.79 | -1.63 | 4.56 | 3.77 | 3.83 | |
| Dimensional Five-Year Diversified Fixed Interest | -0.83 | -0.25 | 1.38 | 2.05 | 2.51 | |
| Dimensional Global Bond Trust | -4.41 | -1.17 | 3.50 | 3.87 | 3.84 | |
| Dimensional Two-Year Diversified Fixed Interest | -0.54 | -0.27 | 1.10 | 1.58 | 1.90 | |
| Franklin Templeton Global Aggregate Bd W | -5.09 | -2.17 | 3.74 | 3.29 | 2.11 | |
| Franklin Templeton Multisector Bond I | -4.90 | -6.29 | -10.58 | -3.75 | -0.97 | |
| Invesco Wholesale Senior Secured Income | mFund | -15.38 | -15.93 | -13.51 | -2.55 | 0.50 |
| Legg Mason Brandywine Global Opp Fixed Income A | mFund | -8.20 | -10.54 | -5.77 | -0.42 | 0.41 |
| Legg Mason Brandywine Global Fixed Income A | -6.25 | -8.22 | -3.91 | 0.68 | 0.67 | |
| Legg Mason Western Asset Global Bond Fund | -4.14 | -2.22 | 3.40 | 3.37 | n/a | |
| Legg Mason Western Asset Macro Opportunities Bond Fund | -10.93 | -13.84 | -4.68 | 1.14 | n/a | |
| Macquarie Global Income Opportunities Fd | -6.49 | -5.43 | -1.58 | 1.61 | 2.05 | |
| Macquarie Core Plus Australian Fxd Intr | -5.28 | -1.81 | 3.75 | 5.26 | 3.85 | |
| Mercer Global Credit Fund | -8.05 | -5.79 | -0.19 | 2.22 | 2.69 | |
| Mercer Global Sovereign Bond Fund | -1.99 | 0.48 | 6.40 | 5.26 | 4.40 | |
| Omega Global Corporate Bond | -5.28 | -2.13 | 2.56 | 2.83 | 3.00 | |
| PIMCO Global Bond Wholesale | mFund | -4.34 | -2.07 | 2.10 | 3.14 | 3.46 |
| PIMCO Global Credi Wholesale | mFund | -5.81 | -3.62 | 1.04 | 2.65 | 3.08 |
| PIMCO Diversified Fixed Interest Wholesale | mFund | -2.95 | -0.41 | 3.74 | 4.00 | 3.58 |
| PIMCO Unconstrained Bond Wholesale | mFund | -4.92 | -5.35 | -3.34 | 0.73 | 1.96 |
| State Street SSgA Global Fixed Income | 0.10 | 3.92 | 7.99 | 5.02 | 4.11 | |
| T.Rowe Price Dynamic Global Bond Fund | 2.03 | 2.51 | 2.99 | 1.38 | 3.20 | |
| Templeton Global Bond Plus W | -4.99 | -6.24 | -6.30 | -1.65 | -0.21 | |
| UBS Global Credit Fund | -7.68 | -5.14 | 1.55 | 3.03 | 3.24 | |
| UBS International Bond | -3.03 | -0.11 | 4.12 | 3.82 | 3.41 | |
| Vanguard International Credit Securities Index Hdg | -7.19 | -4.38 | 1.04 | 2.85 | 3.02 | |
| Vanguard International Fixed Interest Index Hdg | -0.56 | 2.97 | 6.69 | 4.57 | 3.91 |
*End of March 2020. Returns in AUD after fees.