Global Bond Funds October 2019

Conditions were difficult for Australian investors in global bond funds in October, although they were not quite as difficult as they had been in September. US Treasury bond yields fell noticeably at the front of the curve but increased elsewhere on the curve while sovereign bond yields in other major markets rose markedly. The Aussie dollar was stronger against the US dollar and the yen, fairly stable against the euro and a little lower against sterling.

In spite of the environment, 17 of the 40 funds in the YieldReport survey finished the month with a positive return and three of these 16 funds produced a return above 1.0% for the month. Of the 23 funds which produced negative returns, none of them produced a return of -1.0% or less.

The median 1 month performance in the YieldReport survey of global bond funds in October was -0.09% (September: -0.25%) while the median return over the 12 months including October came to +9.01% (August: +8.73%). The Barclays Global Aggregate Bond Index, a widely-used index in this sector, returned -0.27% in October and +10.19% (coincidentally the same return as in September) over the rolling year when calculated in Australian dollars.

In US markets, by the end of the month, the 2-year Treasury bond yield had lost 11bps to 1.52% while the 10-year yield had gained 1bp to 1.69% and the 30-year yield had increased by 5bps to 2.18%. In other advanced-economy markets, German 10-year bunds were 17bps higher at -0.41%, French 10-year OATS had gained 13bps to -0.15% and 10-year UK gilt yields had increased by 14bps to 0.54%. Italian 10-year government bond yields finished 10bps higher at 0.92%.

(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 October survey was the Legg Mason Western Asset Macro Opportunities Bond Fund. It produced a return of 3.17% for the month, which is coincidentally the same exact return the fund produced in September. These stellar returns followed a near-worst-in-class performance in August (-2.30%) and a worst-in-class performance in July (-0.78%).

According to the manager, at the end of September, the fund had 28% of its assets in the US, 9% in Russia, 7% in Mexico, 6% in Brazil and the balance spread throughout the world. Just over 60% of the fund is in “investment grade” assets. The fund’s effective duration was 5.5 years but just under 20% of the fund was in cash or very short-term securities.

The second-highest return was produced by another Legg Mason fund and, for the second month in a row, it was the Brandywine Global Opportunistic Fixed Income Fund. Its return of +1.57% came on top of its 0.52% return in September and a bottom-quartile performance in August (-0.32%).

In terms of fund performance for the twelve months to the end of October 2019, Macquarie’s Core Plus Australian Fixed Interest fund was pushed out of the top spot by the above-mentioned Macro Opportunities Bond Fund. The fund took over as highest-returning fund for the 12-month period with a return of 18.2%, up from its comparable figure of 12.01% in September. The Macquarie fund’s 13.88% return made it the second-best performer over this time period.

GLOBAL BOND FUNDS

GLOBAL BOND FUNDS	ASX mFund	1m (%)	3m (%)	1y (%)	3y (%)	5y (%)
Advance International Fixed Interest Multi-Blend		-0.27	1.11	8.25	2.50	2.58
Alpha Diversified Income	mFund	-0.35	0.19	7.32	3.43	3.32
AMP Future Directions International Bond Fund		-0.27	1.23	8.65	2.88	3.29
AMP Capital International Bond		-0.22	1.35	9.19	3.40	3.81
ANZ-CFS Global Credit Income EF		0.22	0.14	1.65	2.37	2.21
Ardea Real Outcome Fund		0.33	1.81	9.01	5.84	4.44
Bentham Professional Global Income	mFund	-0.10	0.10	-0.44	4.64	4.17
Bentham Wholesale High Yield	mFund	0.12	1.12	8.24	6.22	6.01
Bentham Syndicated Loan ASX Class	mFund	-0.30	-0.16	0.81	4.37
Kapstream Wholesale Absolute Return Income	mFund	0.08	0.32	3.26	2.92	3.02
BlackRock Wholesale International Bond		-0.38	1.24	10.17	3.73	4.39
Pendal Enhanced Global Fixed Interest (Wholesale)		-0.54	1.62	10.17	3.14	4.14
CFS Wholesale Global Bond		-0.30	0.93	8.92	2.59	3.60
CFS Wholesale Global Corporate Bond		0.48	1.91	11.49	4.55	4.94
Dimensional Five-Year Diversified Fixed Interest		-0.12	0.12	4.19	2.19	3.12
Dimensional Global Bond Trust		-0.25	1.01	11.03	4.50
Dimensional Two-Year Diversified Fixed Interest		0.08	0.34	2.99	1.91	2.18
Franklin Templeton Global Aggregate Bd W		-0.35	1.10	12.73	3.35
Franklin Templeton Multisector Bond I		-0.56	-9.62	-5.88	-0.13	-0.48
Invesco Wholesale Senior Secured Income	mFund	-0.57	-0.62	1.06	3.57	4.10
Legg Mason Brandywine Global Opp Fixed Income A	mFund	1.57	1.77	10.57	3.61	3.66
Legg Mason Brandywine Global Fixed Income A		1.11	1.53	9.23	3.97	3.62
Legg Mason Western Asset Global Bond Fund		0.41	2.36	11.16	n/a	n/a
Legg Mason Western Asset Macro Opportunities Bond Fund		3.17	3.99	18.22	6.44	n/a
Macquarie Global Income Opportunities Fd		0.40	1.12	6.36	3.88	3.35
Macquarie Core Plus Australian Fxd Intr		-0.42	1.07	13.88	5.92	5.51
Mercer Global Credit Fund		0.07	1.58	10.79	4.11	4.66
Mercer Global Sovereign Bond Fund		-0.42	2.42	12.61	5.21	5.90
Omega Global Corporate Bond		0.16	1.79	9.96	3.48	4.15
PIMCO Global Bond Wholesale	mFund	-0.08	1.03	8.48	4.14	5.00
PIMCO Global Credi Wholesale	mFund	0.22	1.23	9.00	3.98	4.70
PIMCO Diversified Fixed Interest Wholesale	mFund	-0.20	0.72	8.93	4.32	4.85
PIMCO Unconstrained Bond Wholesale	mFund	0.50	-0.44	2.27	3.17	2.93
State Street SSgA Global Fixed Income		-0.54	1.56	10.26	3.66	4.12
T.Rowe Price Dynamic Global Bond Fund		-0.12	-2.01	-1.05	-0.15
Templeton Global Bond Plus W		-0.06	-4.00	0.89	2.47	0.67
UBS Global Credit Fund		0.47	1.77	11.87	4.75	5.06
UBS International Bond		-0.09	1.31	9.26	3.67	4.46
Vanguard International Credit Securities Index Hdg		0.08	1.57	10.86	4.35	4.80
Vanguard International Fixed Interest Index Hdg		-0.57	1.33	9.58	3.57	4.56