AXA - Going Global with Short Duration

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  • 29 mins 17 secs
Nicolas Trindade, Portfolio Manager, AXA Global Short Duration Bond Fund, discusses the reason for launching the fund, the key characteristics in the portfolio, performance drivers, the global investment process, construction of the portfolio and his outlook for medium and the long term.

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ROB BAILEY: Hello and welcome to today’s AXA Investment Managers webcast. I’m Rob Bailey. I’m head of UK Wholesale Distribution. And today I’m joined by my colleague Nicolas Trindade. Nicolas is a senior portfolio manager within the AXA Fixed Income team, and we’ll be focusing today on global short duration bonds and talking about the new Global Short Duration Bond Fund that has recently been launched in the UK. So morning Nic, Fund Manager of the Global Short Duration Bond Fund, you’ve got a very good extensive track record managing the Sterling Short Duration Bond Fund. Why have we moved ahead and launched a global short duration bond fund. What’s the reason behind it?

NICOLAS TRINIDADE: Good morning Rob. The main reason why we wanted to, we decided to launch this global short duration bond fund is because we wanted to use the extensive range of short duration bond funds that we have available at AXA IM, and we wanted to incorporate the best ideas from our local short duration bond funds into one truly global strategy.

ROB BAILEY: OK and we’ll come on and we’ll talk about the range of short duration bond funds within the AXA suite, but I think it would be quite useful to understand how you interact with your colleagues. There’s a number of colleagues here who’ll be well known to many of the people watching this webcast, people like John Baltora or James Gledhill etc. How do you interact with them and how will that help in constructing this portfolio?

NICOLAS TRINIDADE: Yes I mean I’m very lucky being part of AXA IM because I can rely on extensive resources within AXA IM so I will be leading the AXA Global Short Duration Bond Fund. Nick Hayes will be the Deputy Portfolio Manager on this strategy. And then I will be heavily relying on Frank Olszewski, who is a portfolio manager based in the US, to manager the US investment grade part of the portfolio. When it comes to inflation, European investment grade, euro yield emerging markets and USA yield, I will be relying from the inputs of the local experts. And that is very important because, you know, the idea behind this portfolio is to incorporate the best ideas from all our local short duration bond funds. In order to do so I’m going to rely on the expertise from all of those local experts.

ROB BAILEY: And I know that some of the colleagues here are based in London. Some of them are obviously based in Paris, in the Far East, in the US etc. How do you maintain a dialogue with them on an ongoing basis?

NICOLAS TRINIDADE: So for the portfolio managers that are based in London, obviously it’s very easy, I myself based in London, and that makes the communication very seamless because I can talk with (Selesh? 0:02:29), part of the [unclear 0:02:32] deal, part of the European high yield team very easily. When it comes for example to US investment grade I have daily communication with Frank Olszewski. We discuss markets. We discuss new issues. We discuss portfolio construction to make sure that whatever is done in the US is within the framework that we define for the overall portfolio.

ROB BAILEY: OK. Well let’s have a quick look at the Global Short Duration Bond Fund and how it’s constructed. Talk us through this slide here. What are the key characteristics that you’re looking for within this portfolio?

NICOLAS TRINIDADE: So the first thing to mention is our investible universe for this particular strategy. And for this fund we invest directly in short-dated bonds with up to five years maturity, and we can invest across the whole short-dated fixed income spectrum. That means that we can invest in inflation-linked investment grade high yield and hard currency emerging market bonds, so a very broad investible universe. And on this strategy we have three main objectives. The first one is that we aim for capital preservation; the second one is that we want to provide and strong level or portfolio liquidity; and the last one is that we a strong focus on providing superior risk-adjusted returns.

ROB BAILEY: Now, one of the reasons that people have been very interested and utilised the short-duration range is that liquidity argument. So when I look at this slide here we’ve got something like 23% of the bonds maturing in the first year. How does that compare with other short-duration bond funds that you manage, but also how does that help with the liquidity situation?

NICOLAS TRINIDADE: So this maturity breakdown that you can see on the slide is very similar to the Sterling Credit Short Duration Bond Fund, where we target to have on average 20% of the portfolio maturing each year. So very similar to the current [unclear 0:04:13]. And having a strong liquidity profile is very important for three reasons.

Firstly, you’re not necessarily a forced seller, even if you are faced with redemptions. That can make a very big difference in difficult market conditions because you don’t necessarily have to be a liquidity taker. Secondly, you can naturally benefit from a rising yield environment. And lastly you can be active at a lower cost. That is particularly important for global strategy – because one of the alpha source in a global strategy is the ability to dynamically asset allocate across the whole fixed income spectrum. If you’re having 20% of the portfolio maturing each year, I can naturally do it through the bonds that mature – which means that I can be active whilst still having quite low transaction costs on the strategy.

ROB BAILEY: And thinking about that logically that means in a rising interest rate environment you’ll be redeeming bonds which at the current time are yielding a very low level and be able to invest them five years out at a higher yield.

NICOLAS TRINIDADE: Exactly, that’s correct. And by having this 20% maturing each year on average, what you would see in the [unclear 0:05:19] environment is the yield on the fund rising in line with the rising yield environment with limited capital losses. That is something that is very attractive.

ROB BAILEY: OK. Now, one of the things that we always talk about when we’re talking about short duration is our aim is to achieve a strong capital preservation, our aim is reduce volatility. Clearly, within short duration funds, themselves, there’s different levels of risk that come out. Where does the global fund sit within the range as a whole?

NICOLAS TRINIDADE: So the Global Short Duration Bond Fund will fit quite nicely in the middle of the range. If you look at our range right now it’s quite extensive. We have about eight strategies within our short-duration range. So at the lower end of the risk spectrum you have the global short-duration inflation-linked fund, which is in only govies, linkers. Then, if you want to go a little bit higher in the risk spectrum, you can look at our investment grade fund, and Sterling Credit Short Duration is part of those short-duration investment grade funds. And then if you look at the higher part, higher risk parts of the spectrum then you will look at the high yield or emerging market fund. And in this portfolio we will sit quite nicely in the middle. That is because we have the ability to allocate to high yield in emerging markets up to 60%.

ROB BAILEY: So you have that ability to allocate towards those but what sort of an investment rating are you aiming at with this fund?

NICOLAS TRINIDADE: So for this portfolio you should expect an investment rating which should be around the BBB level. So we still expect the average rating of the overall portfolio to be investment grade, but we do have the ability to go up to 60% in high yield and EM combined. Also, have the ability to go up to 20% in inflation-linked bonds, for example.

ROB BAILEY: But all these funds I suppose share the same characteristic that over a given period of time they have less sensitivity towards interest rate rises than a normal standard duration fund.

NICOLAS TRINIDADE: Exactly that is totally correct. Because when you look at short-duration strategy, one of the objectives is to try to limit volatility and minimise drawdowns. And one of the best ways of minimising drawdowns on your strategy is to lower the duration on your strategy. And if you look at all short-duration bond funds, obviously they will have short duration. And because capital preservation is very important, there’s a strong focus on bottom-up credit research to make sure that the names that we buy are, you know, worthy of being paying, that we’re not going to have any default expense in the portfolio. And there’s an added advantage of buying at the short end. That is because we can have a much better visibility on the company cashflows at the short end of the market – which means that we can much better assess the ability of the company to repay its debt.

ROB BAILEY: So you have a higher degree of certainty because there’s shorter time until that debt is due.

NICOLAS TRINIDADE: Exactly. That can make a really big difference. Particularly in the high yield universe, it makes a huge difference.

ROB BAILEY: OK. So this is the third of the short duration funds that we’ve launched within a UK-domiciled wrapper. Obviously a lot of the emerging markets and the global inflation funds are in our AXA World Fund, which is a Luxembourg SICAV. Again, I’m looking here at this range here. We’d positioned the global short duration fund in the middle. Is that where you see it between the sterling credit short duration and the US high yield short-duration, you see it sitting in the middle?

NICOLAS TRINIDADE: Yes, definitely, and when you look at the key characteristics of each of the different funds, you can see that this global short-duration bond fund fits quite nicely between the two. I mean if you look in terms of yield, you know it’s bang on in the middle between sterling credit short-duration and US short-duration high yield. And if you look at the average rating, you go from A- on the sterling form, you know, which can only have up to 5% in high yield, to B+ on US short duration high yield, which is obviously 95-100% in high yield. So you can see that from the key characteristics, this new fund really fits nicely in the middle of our range.

ROB BAILEY: Yes, and if you look at the investment grade credit weightings that’s borne out there as well. We’ve got nearly 90% in the sterling credit short duration and about 70% within the global short duration. And that strategy, obviously the fund is fairly new, do you see that being your long-term strategy within this fund to maintain levels around there or do you think there will be opportunities for you to tweak the portfolio slightly to generate additional alpha?

NICOLAS TRINIDADE: Yes I mean I do hope we will see opportunities for us to tweak the current asset allocation of the portfolio and be in a position to add to high yield and emerging markets. To potentially try to capture, you know, better opportunities and wider spreads. I think what is very important when you look at the portfolio is to understand the neutrals. So we can invest up to 20% in inflation-linked bonds and up to 60% in high yield and EM. So what it means it means that our neutral position is 10% in linkers, 60% in investment grade and 30% in a high yield and EM combined. And when you look at the current asset class breakdown you can see that we are underweight linkers - this is a neutral - overweight investment grade - this is a neutral - and underweight high yield and EM - this is a neutral.

ROB BAILEY: OK. Well we’ll come along, we’ll have a look at the portfolio in greater depth shortly, but I want to move on to the actual drivers of performance within the fund. Before, we’ll talk a little bit about the market on this slide as well. But before we do that, let’s just perhaps emphasise how you think you’ll generate out performance within this fund?

NICOLAS TRINIDADE: So from a perspective they are really three main sources of alpha for this fund. The first and main source of alpha is going to be the asset allocation across the fixed income market. So how we position in linkers, investment grade high yield and EM, investors are neutral. That would be the main driver of alpha for the strategy. Then the second driver of alpha for the strategy would be our sector allocation, how we, you know, position from a sector and also country perspective. That is particularly relevant for emerging market economies. And then the last source of alpha would be our stock picking. The issuer selection to make sure that we pick the right issuers that present the best opportunities and the most attractive risk return profile.

ROB BAILEY: And, you know, we’ve discussed on many occasions before this sort of asymmetric return if you like of bonds. How much focus is on generating additional performance and how much focus is on avoiding the landmines if you like or the opportunities within the bond market where you could buy something that maybe defaults or something that triggers a downgrade?

NICOLAS TRINIDADE: I mean the focus of the portfolio, one of the main focuses of the portfolio is that we aim for capital preservation. So that is a very strong focus for the strategy. And a very good illustration of that is the fact that in this strategy, in this form, we do not want to own any equity like hybrid debt. It’s quite a big part of our investible universe. When I say equity like hybrid debt, I’m talking about AT1s, legacy tier 1s, corporate hybrids, they are deeply subordinated, usually they exhibit a call debt, and if they don’t get called they go to perpetuity.

ROB BAILEY: Right.

NICOLAS TRINIDADE: We do not have any exposure to this type of debt. It’s very high yielding, but we do not have any exposure to it because of the strong focus that we have on capital preservation.

ROB BAILEY: Yes and we emphasise that point a lot when we talk about the need to do that. So, within the framework of the global investment process that we have, I mean you’re clearly work within a large team, there’s a number of people who you rely on for this particular fund, but I think on a broader basis, you know, the team is very interactive in how they share ideas. Explain to us how the global investment process actually works?

NICOLAS TRINIDADE: Yes so again I’m very lucky being part of AXA IM because our investment process is a global investment process that is used by all the teams within fixed income. So it doesn’t matter if you manage a linker fund or high yield fund, you’ll be using exactly the same investment process. And what it means, it means that all team within fixed income uses the same framework to devise their active strategies. That is very important for me because that means that I can really compare really well the output from all the different teams within fixed income.

So this investment process is done formerly on a quarterly basis and we’ve just finished our June forecasting process. And it’s a five-step in this one process. The first step is where we define the macro environment. So we get external economists, strategists, to come to AXA IM. We also get our own internal economists and strategists to come and talk to us. We listen to their views. We debate their views. And the idea of step one is to define the macro outlook for the next three months. That would then be used as a basis for the second step which is where we define the active strategies.

So, within the second step, each team within fixed income, sterling investment grade, US high yield, European high yield etc. will meet to come up with a view on their own markets for the next three months, our expectations in terms of spread tightening or spread widening, and also expectations in terms of spread volatility. Then the step three will be where we build the portfolio according to the views that we express on step two. Then step four is the risk monitoring that we do. And step five, the continuous strategy review that we do because obviously we do that formerly on a quarterly basis. But if they are big events within those three months, we will do an ad hoc forecasting.

ROB BAILEY: So when we look at that, having been through the forecast meetings, obviously the portfolio construction that you create as a result of that is dependent upon our view on interest rates, our view on macroeconomy generally, where do we stand with our views for the market, you know, following the recent conclusions you drew?

NICOLAS TRINIDADE: So if you look at our current view for the market over the next three months. So we still are bearish on government bonds and so we still expect yields to rise in the US, in the UK and in the eurozone. So we have a small short duration bias on our strategies. If you look at investment grade, we expect a small tightening in spread for the dollar and the European markets, while we actually expect a widening in credit spreads for the sterling market over the next three months. And that is because of the uncertainty around Brexit, but also the added uncertainty around the current Tory minority government and the fight at the Bank of England is not there anymore as a backstop, not there anymore to buy corporate bonds. And if you look at high yield and EM we’re actually positive for the next three months on both asset classes. So that is for quite a short…

ROB BAILEY: So it’s quite a varied perspective of the world; you’re not seeing sort of a one direction of travel over the next few months.

NICOLAS TRINIDADE: No, not exactly. That’s why, you know, looking at the global portfolio it’s quite attractive because, you know, credit cycles are not necessarily in tune across the world. Some problem policies are definitely not in tune across the world, and that definitely gives ability for a skilled active portfolio manager to benefit from those distortions and those differences in the global market.

ROB BAILEY: OK. Well let’s go along and have a little bit more at the portfolio construction here. Breakdown by asset class, I mean it comes back to some of the points we made in the earlier slide but the 69% that you have in investment grade, that’s kind of your core position would you say?

NICOLAS TRINIDADE: I would expect investment grade to be a core position within the portfolio. And then according to what we see in the high yield market and emerging market in terms of value, we may add further to EM and high yield. But I would expect over the long term for the core holding to be in investment grade for this strategy.

ROB BAILEY: And looking at sort of the breakdown of some of the individual classes or assets here, you’ve got sovereign breakdown, you’re holding some nominal, some inflation bonds. Does that reflect the view that, you know, you see inflation rising?

NICOLAS TRINIDADE: Yes definitely so obviously for the inflation part of the portfolio I will be liaising with Jonathan Baltora, who is our expert at AXA IM, and his view is that, you know, it’s fairly positive on US real yields, so that’s where he currently sees value, and that’s why if you look at our allocation within inflation it will be 100% in short-dated US tips – because that’s where we currently see value.

ROB BAILEY: And I’m interested in the high yield breakdown here. Now clearly there’s no currency play within this fund because it’s all hedged back into sterling, am I correct?

NICOLAS TRINIDADE: Yes that’s correct, yes.

ROB BAILEY: OK so looking at this you’ve got an overweight euro to US high yield position currently, is that just a reflection of spreads?

NICOLAS TRINIDADE: It’s a reflection of value but is also a reflection of the outlook for the next three months because we started to see some weaknesses in oil. Oil prices started to go down and we started to see some weaknesses in the energy sector. It’s not large as it stands today but it could potentially increase and obviously the US high yield market is much more exposed to the energy sector and if we start seeing more drop in oil prices the US and high yield market will be more exposed to that and potentially underperform. So that’s one reason why we are overweight European high yield versus US high yield in the portfolio.

The other reason why we prefer European high yield versus US high yield is also because of the technical backdrop in the eurozone. The European Central Bank, it’s still in the euro market buying corporate bonds. They do not buy high yield bonds, they buy investment grade bonds but there’s an effect on the high yield market because of the hunt for yield.

ROB BAILEY: Of course yes.

NICOLAS TRINIDADE: So the technical backdrop is still very positive for European high yield spreads, and that’s one reason why also we want to be overweight European high yield versus US high yield.

ROB BAILEY: OK and coming back to the point that we discussed earlier on around future cashflows I mean one of the things we learned in 2007 and 2008 is that sometimes liquidity in the market is very thin and very difficult. What’s this slide telling us?

NICOLAS TRINIDADE: I think this slide is very important because it really shows you what is at the heart of the portfolio. And what is really at the heart of the portfolio is the fact that we want to target on average 20% of the portfolio maturing each year. To be able, you know, to get the advantages that we talked earlier on. But also what is very important is to make sure that all asset classes will mature gradually over the years because if I want to have the ability to change the asset allocation naturally within the portfolio I need all the asset classes to mature over the years. And you can see that very clearly because what we show you on this slide is the maturity breakdown per asset class.

What you can also see very clearly is that US investment grade for example is going to mature much earlier than European investment grade or sterling investment grade. And that is for example because we expect rates to go up faster in the US than in the eurozone or in the UK so we reflect also those views for the maturity breakdown on each asset class.

ROB BAILEY: So that’s quite an interesting sort of tactical decision seeing how you’re constructing the portfolio in line with the expected rate rises in the US and expected rate rises across the rest of the world. So, looking at how that evolves, if we get the expected rate rises in the US, I’m assuming then that that means there’ll be more attractive bonds at the five-year stretch in the US space. So you were not forced into changing your asset allocation, it gives you the opportunity to invest on a longer-dated bonds.

NICOLAS TRINIDADE: Exactly, that’s the idea behind it. It’s because we expect interest rates to rise faster in the US versus the Europe and the UK. That’s why we wanted to have a bigger proportion of US investment grade part of the portfolio that mature earlier on. And that’s a little bit the same spread with high yield. If you look at our high yield allocation within the portfolio it would be shorter dated than the average of the portfolio. That is again to give us the ability to reallocate high yield, you know, potentially to benefit from higher, wider spreads.

ROB BAILEY: OK. So this next slide just on the portfolio construction, talk me through what we take from this slide.

NICOLAS TRINIDADE: So when you look at the portfolio construction process for this portfolio, there are three steps. The first one is to decide your asset allocation, which we’ve discussed it. Then the second step is to decide which themes you want to implement within each asset class. So for example if you look at EM, which regions you want to buy within EM, and here very clearly we have a bias towards Latin America. We like Latin American names. It has something that in a portfolio I will be adding over the next couple of months. If you look at investment grade, we have a bias towards financials. So you should expect more financial weight in investment grade within the portfolio. And if you look at linkers, as we discussed, we are positive on US inflation and on US real yields. That’s why for example within the portfolio 100% of our allocation in inflation is in US real yields, US short-dated tips.

ROB BAILEY: So essentially dark green is where we’re overweight, dark blue is where we’re underweight.

NICOLAS TRINIDADE: Exactly so that is the local [unclear 21:32] as provided by each of the different teams and then I try to implement those views within the portfolio.

ROB BAILEY: OK very good. Now, portfolio construction, again, this is perhaps a bit more in-depth than some of the earlier slides. What are the key points you would take out of this slide?

NICOLAS TRINIDADE: I think the first breakdown is quite interesting, is the breakdown by sector because you can see that we have quite a good spread of sectors within the portfolio. And as it stands right now we are quite well balanced between financials, defensive and cyclical within the portfolio. But that’s something that could change over time according to the value that we see in each of those different sectors. When you look at the breakdown by region again it’s very interesting because here you can really see the extent of the global diversification where we have about 9% exposure to emerging market names. And where you can see that the exposure to UK names is only at 15%, which is much lower than what you would have on a pure local UK fund.

ROB BAILEY: And just to be clear with all that hedged back into sterling the risk you’re taking or the return you’ll benefit from is around what the bonds are delivering rather than any currency fluctuations.

NICOLAS TRINIDADE: Yes, that’s correct. So every time we buy non-standing bonds they will be hedged back into sterling. So there’s no currency risk within the portfolio. And we use currency forwards to hedge the currency risk within the portfolio.

ROB BAILEY: But clearly you must be focused on currency because that has an impact in the economies of the countries that you’re investing in.

NICOLAS TRINIDADE: No, of course, and also another impact of currency is the hedging cost, because obviously when you buy non-sterling bonds you will have to take into account hedging costs when you decide to buy dollar bonds or when you decide to buy euro-denominated bonds, so very important.

ROB BAILEY: OK.

NICOLAS TRINIDADE: The last point I would like to make is on the [unclear 23:12] instrument, because not only we have the ability to buy index-linked bonds, but we can also buy floating rate bonds. That is an exposure that I plan to increase over the next couple of months.

ROB BAILEY: So, floating rate bonds, where are they typically issued? Because I know you’ve got an exposure to it within the sterling credit short duration bond fund, but are they global instruments do you find them quite widespread?

NICOLAS TRINIDADE: Yes so when it comes to floating rate bonds most of the issuance actually happens in dollars. If you look at the issuance in euros and sterling it’s fairly limited and it’s mostly geared towards banks. So if you want to get access to more floaters and more corporate floaters you will have to look at the dollar market.

ROB BAILEY: And if you look right now at our floating rate one exposure which is around 5% in the global short duration bond fund, all will be in almost all will be in dollar floaters. And it’s much easier to buy dollar floaters in the primary market because secondary market liquidity around floaters tends to be quite poor so it’s very difficult to find floaters in the secondary market.

ROB BAILEY: OK. Now, when launching this fund, naturally before we brought it to the market, there was a lot of historical backtesting that we carried out to see how the fund would have performed, and against that backdrop there’s a couple of interesting slides. I mean I think we toyed with a couple of different models within the global short duration fund, and we’ve included those, but explain to us the slide in the top right because I think that’s perhaps the one that focuses on the volatility.

NICOLAS TRINIDADE: So before we launched the fund we created two model portfolios. Model portfolio one with 25% in high yield and EM; in model portfolio two with 50% in high yield and EM. And we decided to create two model portfolios because of the fact that we can go from zero to 60% in high yield and EM so we thought it would be more representative to have those two model portfolios to give an idea of the behaviour. And what we did is we back listed those two model portfolios over the last five years. So we just took the holdings of each model portfolio and just backlisted them so we didn’t make any room for active management.

ROB BAILEY: Right so this is a purely systematic…

NICOLAS TRINIDADE: Purely systematic backlisting where we just took the holdings and looked at how they would have performed over the last five years. And what I think is very interesting is that the level of volatility is very low from model portfolio one and model portfolio two, it is around 1% annualised volatility which is fairly low level of volatility. It’s even slightly lower than sterling credit short duration which I think is quite interesting because it really shows you the added advantage of global diversification.

ROB BAILEY: But then also what is quite interesting is the pickup in return because the pickup in return can be quite high particularly for portfolio two where you have a much higher exposure to high yield and emerging market within the portfolio.

ROB BAILEY: And recognising that these are backtested results rather than actual results, the drawdowns on the bottom right here that’s quite interesting.

NICOLAS TRINIDADE: That’s again a very interesting point because if you look at model portfolio one where we have 25% in high yield and EM, the drawdown happened during the taper tantrum – which is what you would expect because most of the portfolio would be invested in investment grade so you would expect, you know, the portfolio to underperform at the time where investment grade funds underperformed. But if you look at model portfolio two with 50% in high yield and EM the drawdown again of -1%, so fairly limited happened during the community selloff period. And that again makes sense because we have 50% high yield and EM with that portfolio two behaves much more like a high yield fund. That’s what I think is very attractive in this global short duration bond fund because if we get our asset allocation right we can further minimise drawdowns and further maximise yield and performance.

ROB BAILEY: OK and that’s a historic return. We’ve got a question here that’s come in which is in the medium to long term so minimum of five years. How do you expect this fund to perform relative to inflation and the returns on cash for a UK investor, what would be your - I’m not asking you to look into to give us a clear forecast but just what would be your expectation?

NICOLAS TRINIDADE: Well I think the starting point of giving this type of answer would be first to look at the yield on the portfolio and if you look at the yield on the portfolio it’s about 1.3 to 1.4% so that would be the starting point. If nothing happens over the next year we should get about 1.3 to 1.4% in terms of returns. Then obviously over the next couple of years what we expect to see is…

ROB BAILEY: So that’s assuming you get no benefits of asset allocation, no benefits of stock picking, no alpha generated…

NICOLAS TRINIDADE: Exactly, just, you know, nothing happens. We don’t change the portfolio around so that will be your starting point. Then, you know, if you assume that, yield are going to rise, gilts are going to rise but yields are going to rise globally then we should be able to benefit from high yields. Then if also we start seeing some widening credit spreads because we still expect credit spreads to widen over one-year time horizon. That’s one reason why are underweight high yield and EM right now. We should be able to benefit from that too through, you know, changing the asset allocation within the portfolio. So I would say over a one-year, two-year time horizon I would expect a return maybe of around 2%.

ROB BAILEY: But over the medium to longer term which I guess is the important thing I guess the key driver is you have the ability to invest in bonds which may be yielding at a higher level in a rising interest rate environment.

NICOLAS TRINIDADE: Exactly and that’s one reason why, you know, we have have short dated, also one reason why we are underweight high yield and EM within the portfolio, because we want to build the ability to potentially add to high yield and EM and wider spreads which obviously will benefit the fund because the fund benefits from much higher yields.

ROB BAILEY: OK. Well let’s draw to a close there, Nic. Thank you very much for your time today and your answers and good luck with the new fund launch. And thank you for joining us today, I hope you found the webcast useful and we look forward to seeing you next time.