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November 2012
M&G Global Macro Bond Fund
Rupert Wooster, Deputy Director UK Institutional Sales
2
Introduction to M&G
One of Europe’s leading
asset managers
One of Europe’s largest
corporate bond fund
managers
One of Europe’s largest
fixed interest credit
research teams
An active global reach
Total assets:
€252bn
Fixed
income
€152.2bn
Fixed income
analysts based in
London 86
Corporate
bonds:
High
yield
€6.2bn
Investment
grade
€87.3bn
Access to Prudential
resources in the US,
Asia and South Africa
Source: M&G, as at 30 June 2012
3
M&G Global Macro Bond Fund
• Fund manager: Jim Leaviss
• Deputy fund manager: Mike Riddell
• Launch date: October 1999
• Fund structure: UCITS III
• Size: £299 million
• Sector: IMA Global Bond sector
Fund facts
Source: M&G as at 31 October 2012. Fund size as at 22 November 2012. Ratings as at 30 September 2012 and should not be taken as recommendations.
4
60
80
100
120
140
160
180
M&G Global Macro Bond Fund X Acc Emerging market local currency sovereign debtEuropean High Yield GiltsSterling Investment Grade Corporates
Global opportunity set and designed to achieve lower volatility To
tal
retu
rn,
ind
ex
ed
to
10
0
M&G Global Macro Bond Fund
Total return
73.1%
60.7% 60.4% 52.3% 42.5%
Credit crisis
Our most flexible bond fund
Source: M&G, Bloomberg, Morningstar as at 2 November 2012. Sterling X Acc class shares, UK database, net income reinvested, price to price. European High Yield refers to the ML European High Yield Constrained Index, Emerging
Market Local Currency Sovereign debt to the JPM EM-GBI Global Diversified Index, Gilts to the ML UK Gilts Index, and Sterling Investment Grade Corporates to the ML Sterling Corporate & Collaterlized Index.
5
Deputy Fund Manager
• Mike Riddell joined M&G’s fixed interest team in 2003,
originally as a portfolio analyst
• In March 2010, he was promoted to fund manager of
M&G Emerging Markets Bond Fund, M&G International
Sovereign Bond Fund and M&G Index Linked Bond Fund
• Prior to joining M&G, Mike worked as an assistant portfolio
manager at Premier Asset Management within the private
client department, covering both equities and fixed income
• Mike graduated from Birmingham University in 2001 with a
BSc honours in money banking & finance, and is CFA
charterholder
Mike Riddell
November 2012
Mike Riddell, Deputy Fund Manager
M&G Global Macro Bond Fund
S T A Y A H E A D
7
Agenda
Emerging markets are not a safe haven
The US economy – a comeback story
Portfolio positioning of the M&G Global Macro Bond Fund
Introduction to the M&G Global Macro Bond Fund
8
Introduction to the
M&G Global Macro Bond Fund
9 Source: M&G, as at 13 January 2012.
Aims to outperform the average fund in its peer group as well as the fund’s composite benchmark over the medium term
Aims to deliver steady returns with lower volatility than the
average fund in its peer group throughout the economic
cycle
Aims to construct a diversified portfolio by investing in a range of liquid fixed interest assets across geographies
Aims to take high conviction views. Not benchmark-
constrained
M&G Global Macro
Bond Fund
Fund manager objectives
A fully flexible global bond fund with total return focus
10
Emerging market are not a safe
haven
11
Emerging market (EM) fund flows close to record this year
Source : JP Morgan, September and October 2012.
Inflows into EM fixed interest ($bn) Cumulative flows per asset class (% of AUM)
Where are valuations?
12
EM external sovereign debt credit spreads are reaching
pre-crisis levels Z
-Sp
rea
d in
bp
s
www.bondvigilantes.com
Source: Bloomberg, M&G, as at October 2012.
Barely compensating for liquidity risk, let alone credit risk
0
200
400
600
800
1000
1200
1400
1600
1800
2000
Bp
s
Brazil 8 ⅞ 04/15/24 Colombia 8 ⅛ 05/21/24 Philippines 10 ⅝ 03/16/25
Mexico 8 09/24/22 Peru 7.35 07/21/25
13 Source : IMF Global Financial Stability Report, April 2012
The question is not if, but when China’s bubble will burst
China – the world’s biggest credit bubble since 2009 Annual change in private credit, 2009-11
% of GDP - World Economic Outlook 2012
-5
5
15
25
35
45
55 2011
2010
2009
14 Source : World Bank, IMF, HSBC, January 2012. *China and Korea data have been adjusted by HSBC.
The Chinese government has a lot of policy firepower
– but the days of 10%+ growth are behind us
Ireland UK Spain
HK
Korea*
China*
Portugal
Japan
US
250
Cre
dit to
GD
P (%
) 20
10
200
150
100
50
0
61000 51000 41000 31000 21000 11000 1000 Per capita income (USD)
China’s extraordinarily growth is now held up by credit Chinese GDP growth rate should be nearer to 5% than 10%
Credit to GDP in % (2010) relative to per capita income in USD
15 Source: M&G, as at 30 December 2011.
We are not constructive on EM FX Valuations do not look compelling
Source: Bloomberg, as at October 2012.
De
fau
lt R
ate
%
We have no exposure to EM FX and are short of the ZAR
JP
M R
eal B
road
Eff
ecti
ve
Exch
an
ge R
ate
, in
dexed
to
100
JP
M R
eal B
road
Eff
ecti
ve
Exch
an
ge R
ate
, in
dexed
to
100
60
80
100
120
140
160
180
200
220
240
260
280
BRL
CLP
MXN
30
50
70
90
110
130
150
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
IDR
MYR
CNY
THB
PHP
INR
16 Source: M&G, as at 30 December 2011.
The USD looks attractively valued Particularly relative to sterling
Source: Bloomberg, ONS, as at October 2012. Rebased to 100 at 31 January 1970.
De
fau
lt R
ate
%
We have hedged GBP and AUD exposure into USD
-6
-5
-4
-3
-2
-1
0
1
2
3
4
2008-09 sterling
-19% vs US dollar,
-17% vs euro
1975-76 sterling
-28% vs US dollar,
-29% vs Deutsche mark 1990-91 sterling
-20% vs US dollar,
-15% vs Deutsche mark
UK
cu
rren
t b
ala
nce a
s %
of
GD
P
JP
M R
eal B
road
Eff
ecti
ve
Exch
an
ge R
ate
, in
dexed
to
100
70
80
90
100
110
120
130
140
150
160
170
180
NZD
AUD
GBP
USD
17
The US economy- a comeback story
18 Source: M&G, as at 30 December 2011. Source: Barclays Research, as at 2 November 2012.
The US fiscal cliff negotiations are crucial to reassure
employers, investors and rating agencies
Assessment of US ‘fiscal cliff’ risks (Barclays Research)
A fiscal drag on the US economy is likely to occur, but it is unlikely
that policymakers will let the US fall into recession
19 Source: M&G, as at 30 December 2011.
The US housing market indicates a solid economic
recovery
US new one family homes months’ supply (3m average) vs US GDP yoy
The US economy looks in much better shape than the UK and the
Eurozone – so how can this be reflected in the portfolio?
-10
-8
-6
-4
-2
0
2
4
6
8
100
2
4
6
8
10
12
14
1963
1965
1966
1968
1969
1971
1972
1974
1976
1977
1979
1980
1982
1984
1985
1987
1988
1990
1991
1993
1995
1996
1998
1999
2001
2003
2004
2006
2007
2009
2010
US
GD
P Y
oY
(%)
Ho
us
ing
in
ve
nto
ry –
mo
nth
s’ s
up
ply
(in
ve
rted
sc
ale
)
weak growth
strong growth short supply
large supply
Source : Bloomberg, as at 30 September 2012,
20
• Global construction materials
• Cyclical business, volatile cash flow
• Unsecured, NA/B-
• M&G Rating: B
• Current yield-to-maturity = 7.1%
• Improving credit, favoured play on US
housing market
EUR 9.625% 2017
Stock example Cemex Building materials & construction sector
Source: M&G as at 31 October 2012
21
Portfolio positioning of the
M&G Global Macro Bond Fund
22
Fund positioning summary
Source: M&G, as at 31 October 2012.
Currency breakdown
%
M&G Global Macro Bond Fund
Key portfolio themes
We like the USD and have short positions in
sterling, the Aussie dollar and Kiwi dollar as
well as the SA rand
We are very selective – some corporate exposure, but short positions in Brazil, Indonesia, Russia, South Africa & Turkey
Quality dominates. Generally we prefer
credit over government bonds.
Still overcompensates for default, but
valuations have come closer to fair value
Central banks no longer care about
inflation, so we have 18% in linkers
Low interest rate duration of around
2.5 years
We prefer corporate issuers – although
covered bonds + RMBS are good value
Currencies
Emerging
markets
Government
bonds
High yield
Inflation
Duration
Investment
grade
-5
5
15
25
35
45
55
65
USD EUR JPY CHF SEK NOK ZAR AUD NZD GBP
Fund Neutral position
23
www.bondvigilantes.com
www.twitter.com/bondvigilantes
Prices may fluctuate and you may not get back your original investment.
For Financial Advisers only. Not for onward distribution. No other persons should rely on any information contained within. This Financial Promotion is issued by M&G
Securities Limited which is authorised and regulated by the Financial Services Authority and provides investment products. The registered office is Laurence Pountney Hill, London, EC4R
0HH. Registered in England No. 90776