The median 1 month performance in the YieldReport survey of global bond funds was +0.13% (previously +0.12%) while the median return over the last 12 months was 3.90% (previously 4.65%).
December was a relatively kind month for global bond funds except those with large continental European exposures. However, unhedged funds took a hit from a strengthening of the Aussie against the yen and the USD, although it was a little weaker against the euro. 31 of 43 funds in the YieldReport survey produced positive returns for the month.
Advanced-economy bond markets went their separate ways during December. U.S yields barely moved in net terms, U.K yields were down and continental European yields were up. By the end of the month U.S. yields were up while European yields up were mixed.
The U.S Fed’s rate rise was largely anticipated, U.S. November employment figures and quit rates came and went without much effect on markets. Bond market conditions stayed fairly calm until the week before Christmas when yields shot up in most major markets as the U.S. tax package was passed. Then, in the final days of the year between Christmas and New Year’s Eve, yields drifted lower except in continental European markets, where they rose between 1bp to 4bps.
Yields on U.S. 2 year bonds rose by 10bps to 1.88% while U.S. 10 year bond yields remained unchanged at 2.41% and U.S. 30 year bonds lost 9bps to 2.74%.
In European markets, 10 year bond yields finished the month higher on the continent but noticeably lower in the U.K. German 10 year bund yields gained 6bps to 0.43% and French yields increased by 9bps to 0.78%. Italian yields reversed most of October’s drop and jumped 25bps to 1.98%. The U.K was the odd one out and 10 year gilts fell by 14bps to 1.19%.
The best performing global fund for the month in the YieldReport survey was the Legg Mason Western Asset Macro Opportunities Bond Fund. Its return of 0.95% follows a similar return in November (+1.08%) and a near worst-in-class result in October (-0.96%). The second-highest return of 0.88% was produced by the Legg Mason Brandywine Global Fixed Income fund (Class A).
In terms of fund performance for the twelve months to December 2017, the Legg Mason Western Asset Macro Opportunities Bond Fund produced the highest return (14.51%). At the time, this fund had an effective duration of 4.6 years and the average credit rating of its 401 securities is A-. Over 70% of its holdings were denominated in USD and nearly 45% of the fund was notionally* invested in emerging markets.
GLOBAL BOND FUNDS
| GLOBAL BOND FUNDS | ASX mFund | 1m (%) | 3m (%) | 1y (%) | 3y (%) | 5y (%) |
|---|---|---|---|---|---|---|
| Advance International Fixed Interest Multi-Blend | -0.01 | 0.54 | 2.51 | 1.88 | 2.76 | |
| Alpha Diversified Income | mFund | -0.48 | 0.04 | 1.77 | 2.27 | 2.77 |
| AMP Future Directions International Bond Fund | 0.10 | 0.55 | 3.12 | 2.50 | 3.57 | |
| AMP Capital International Bond | 0.15 | n/a | 3.65 | 3.03 | 4.11 | |
| ANZ-CFS Global Credit Income EF | 0.11 | 0.58 | 3.57 | 3.01 | 3.52 | |
| Bentham Professional Global Income | mFund | 0.41 | 2.15 | 8.18 | 5.96 | 7.12 |
| Bentham Wholesale High Yield | mFund | 0.46 | 0.88 | 9.23 | 7.86 | 7.95 |
| Bentham Syndicated Loan ASX Class | mFund | 0.33 | 1.29 | 6.63 | 6.63 | 6.81 |
| Kapstream Wholesale Absolute Return Income | mFund | 0.16 | 0.87 | 3.55 | 2.98 | 3.56 |
| BlackRock Monthly Income | 0.44 | 1.23 | 6.18 | 4.08 | 5.56 | |
| BlackRock Wholesale International Bond | 0.31 | 0.55 | 4.05 | 3.83 | 5.04 | |
| BT Global Fixed Interest Wholesale | -0.10 | 0.38 | 1.90 | 2.51 | 4.04 | |
| BT Institutional Enhanced Global Fixed Interest | -0.12 | 0.40 | 2.06 | 2.69 | 4.22 | |
| CFS Wholesale Global Bond | 0.12 | 0.77 | 2.23 | 2.77 | 3.98 | |
| CFS Wholesale Global Corporate Bond | 0.55 | 1.17 | 6.10 | 5.05 | 5.75 | |
| Dimensional Five-Year Diversified Fixed Interest | -0.03 | 0.14 | 2.56 | 3.31 | 3.48 | |
| Dimensional Global Bond Trust | 0.22 | 1.02 | 3.90 | 4.48 | ||
| Dimensional Two-Year Diversified Fixed Interest | -0.02 | 0.05 | 1.65 | 2.21 | 2.52 | |
| Franklin Templeton Global Aggregate Bd W | -0.38 | 0.27 | 1.47 | 2.23 | ||
| Franklin Templeton Multisector Bond I | -1.04 | -1.04 | 3.25 | 2.35 | 3.59 | |
| GAM Absolute Return Bond (AU) | 0.28 | -0.56 | 5.58 | 4.36 | 3.08 | |
| Invesco Wholesale Senior Secured Income | mFund | 0.43 | 1.11 | 4.11 | 5.43 | 4.26 |
| Legg Mason Brandywine Global Opp Fixed Income A | mFund | 0.52 | -1.04 | 6.59 | 3.48 | 5.66 |
| Legg Mason Brandywine Global Fixed Income A | 0.78 | -0.54 | 6.53 | 3.01 | 5.32 | |
| Legg Mason Western Asset Global Bond Fund | 0.24 | 0.57 | 7.00 | n/a | n/a | |
| Legg Mason Western Asset Macro Opportunities Bond Fund | 0.95 | 1.06 | 14.51 | n/a | n/a | |
| Macquarie Global Bond | 0.02 | 0.60 | 1.58 | 2.36 | 3.97 | |
| Macquarie Global Income Opportunities Fd | 0.25 | 1.05 | 5.12 | 3.33 | 3.69 | |
| Mercer Global Credit Fund | 0.52 | 1.21 | 5.36 | 4.56 | 5.27 | |
| Mercer Global Sovereign Bond Fund | -0.43 | 0.68 | 3.46 | 4.35 | 5.51 | |
| Nikko AM International Bond | 0.10 | 0.79 | 3.06 | 3.47 | 4.74 | |
| Omega Global Corporate Bond | 0.33 | 0.78 | 4.94 | 4.04 | 3.91 | |
| PIMCO Global Bond Wholesale | mFund | 0.09 | 0.71 | 4.99 | 4.92 | 5.35 |
| PIMCO Global Credi Wholesale | mFund | 0.24 | 0.75 | 5.27 | 4.76 | 5.12 |
| PIMCO Diversified Fixed Interest Wholesale | mFund | -0.26 | 1.13 | 4.26 | 3.98 | 4.66 |
| PIMCO Unconstrained Bond Wholesale | mFund | 0.05 | 0.46 | 6.51 | 3.74 | N/A |
| State Street SSgA Global Fixed Income | 0.04 | 0.75 | 2.50 | 2.76 | 4.22 | |
| T.Rowe Price Dynamic Global Bond Fund | -0.06 | -0.11 | -0.35 | 4.70 | ||
| Templeton Global Bond Plus W | -1.15 | -1.36 | 2.46 | 1.04 | 2.01 | |
| UBS Global Credit Fund | 0.65 | 1.20 | 6.38 | 4.93 | 5.37 | |
| UBS International Bond | 0.13 | 1.02 | 3.68 | 3.88 | 4.56 | |
| Vanguard International Credit Securities Index Hdg | 0.41 | 1.13 | 5.24 | 4.45 | 4.83 | |
| Vanguard International Fixed Interest Index Hdg | 0.05 | 0.81 | 2.52 | 3.62 | 4.68 |
*End of December 2017. Returns in AUD after fees.