For investment professionals only. Not for public distribution.
Man GLG Strategic Bond Fund Performance update – Q2 2017 Jon Mawby – Portfolio Manager, Man GLG
Hello and welcome. My name is Jon Mawby on behalf of the Man GLG Strategic Bond Fund and I am pleased to bring you our most recent quarterly update and an outlook at the end of Q2 2017. We were pleased to deliver a strong absolute and relative first quarter for our investors, with the underlying composite of the fund returning 4.08%1 net of fees over the period.
Looking at the macroeconomic backdrop and the quarter kicked off with significant uncertainty as geopolitical concerns surrounding North Korea and Syria, jitters around the French elections and the continued fading of the Trump euphoria weighed on investors’ minds. The subsequent outcome of events in France was, however, very well received by market participants. This dichotomy was clearly reflected in volatility terms with the VIX index in April posting both year-to-date highs and lows by the end of the month. Amid this environment the fixed income universe broadly hedged higher during April with core rates generally positive. This proved supportive for credit, where European assets outperformed the U.S. with higher beta credit and financials in particular doing well.
May again saw another mixed backdrop, while market volatility overall continued to collapse, events in Washington mid-month led equities to post their largest single-day decline so far in 2017, with the VIX marking its largest spike since Brexit. In the UK political uncertainty started to rise into month-end as polls started to point towards a potentially tighter General Election outcome than expected. Fixed income markets broadly performed well however, with core government bonds across DM and EM mostly delivering positive returns. French OATs continued to post strong returns in May, mostly driven by the risk-on momentum following the French elections. This fed through into another decent month for credit markets with peripheral Europe particularly leading the way regionally with financial spreads tightening across capital strucutre whereas non-financials were more mixed.
Despite all of this, the real event for fixed income markets came at the end of the quarter as hawkish noises in June from central banks, in particular the ECB, caused significant volatility. This was most visible in European government bond markets which suffered one of the largest sell-offs for many months. The main catalyst was a speech by ECB President Mario Draghi, judged by the market as signalling a change in stance to a more normalised policy. Further hawkish comments from the Bank of England and Bank of Canada also added fuel to the sentiment. Despite this, fixed income markets emerged with muted performance overall for the month across both core rates and credit in June. European returns were broadly positive while U.S. Treasuries were around flat for the month. Sterling bonds underperformed on political concerns and increased inflation expectations. European credit generally outperformed U.S. credit but not by a large amount while higher beta credit was stronger than higher grade in Europe with the reverse true in the U.S.
Overall, most areas of fixed income markets saw moderate gains during Q2; with corporate bonds comfortably outperforming government bonds which saw gains pared by the late June selloff.
We were pleased to be able to deliver our investors with a robust positive performance over the quarter as we stuck to our investment process and navigated these periods of localised volatility successfully enabling us to build on our strong start to the year.
1. Past performance is not indicative of future results. Returns may increase or decrease as a result of currency fluctuations. Please note that the performance data is not actual past or simulated past performance of an investment product. It shows a composite which is an asset weighted track record of all individual portfolios representing a similar investment strategy. An example fee load of 0.60% has been applied. Positive performance was primarily driven by strong gains from our core Financials positioning. We maintain our relatively large financials allocation which has been the core credit positioning of the strategy over the last 24 months. It has lagged other sectors and has taken longer than we expected for it to perform. We think the financial sector trend will be positive over the next 12 months and that financial credit will outperform on a risk adjusted basis given the attractive yield and expected spread compression to other sectors. Our high yield credit allocation was also positive over Q2 as were a number of relative value trades that we have initiated in recent months. The downside was very limited however we gave back some performance from our government bond portfolio, in particular through our U.S Treasury positioning while our capital protection strategies were also moderately negative for the quarter.
One recent tactical rotation we have made is to trim some of our financials exposure as valuations have richened. Our overall positioning is likely to remain broadly similar in the near term; however we have rotated this capital into a number of idiosyncratic opportunities in the EM corporates space as we continue to search for value.
The strategy has an attractive yield of around 6% given our strategy positioning to financials, selective corporates and high yield. This will be accretive to long-term performance and provide a buffer to potential volatility.
We ended the quarter with interest rate duration of around 2 years. On the interest rate risk side we remain an overall low duration profile because global growth has stabilised and there has been synchronised upswing in economic data, albeit at relatively low levels. In addition, hawkish central bank rhetoric with regards to the gradual withdrawal of stimulus has put a floor on bond yields. Ultimately, we think yields will be capped at defined ranges given the low levels of inflation and structural headwinds of growth, but in the interim the trend for yields remains higher.
We continue to manage interest rate duration in light of the recent comments from numerous central banks. We will continue to rotate out of expensive or over-valued assets and primarily look to re-invest should opportunities arise in the new issue primary market.
Realised volatility has increased slightly, but remains subdued by historical standards and we continue to monitor market technicals with respect to over-crowded positioning. Fundamentals remain fairly robust for credit and we expect spreads to continue to tighten into year-end albeit at a slower pace versus the last 12 months with increasing periods of volatility.
Thank you for listening, we look forward to speaking to you again next quarter.
The Fund is a sub-fund of Man Fixed Interest ICVC, domiciled in the United Kingdom and registered with the Financial Conduct Authority. Full details of the Fund objectives, investment policy and risks are located in the Prospectus which is available with the Key Investor Information Document in English and in an official language of the jurisdictions in which the Fund is registered for public sale, together with the Report and Accounts of the UCITS. The Fund's documentation are available free of charge from the local information/paying agent, from authorised distributors and from www.man.com.
In order to fulfil the fund's objectives the Prospectus allows the manager the ability to invest principally in units of other collective investment schemes, bank deposits, derivatives contracts designed with the aim of gaining short term exposure to an underlying stock or index at a lower cost than owning the asset, or assets aiming to replicate a stock or debt securities index.
The Fund currently has or intends to have more than 35% of its total holdings in bonds issued by or guaranteed by:
• European Investment Bank
• Governments of the following States: United Kingdom, United States, Canada, Norway, Japan, Australia, Spain, Finland, Germany, Holland, France, Belgium, Ireland, Sweden, Austria, Italy, Denmark, New Zealand, Switzerland, Poland, Hungary, Czech Republic, Hong Kong, Singapore
• Inter-American Development Bank
• International Financing Corp
• World Bank
The value of an investment and any income derived from it can go down as well as up and investors may not get back their original amount invested. Alternative investments can involve significant additional risks.
This material is for information purposes only and does not constitute an offer or invitation to invest in any product for which any Man Group plc affiliate provides investment advisory or any other services. Prior to making any investment decisions, investors should read and consider the fund's offering documents.
Opinions expressed are those of the author as of the date of their publication, and are subject to change.
Some statements contained in these materials concerning goals, strategies, outlook or other non-historical matters may be "forward-looking statements" and are based on current indicators and expectations at the date of their publication. We undertake no obligation to update or revise them. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those implied in the statements.
Distribution of this material and the offer of shares may be restricted and the minimum subscription amount may be higher in certain jurisdictions. The product(s) mentioned within this material (i) may not be registered for distribution in your jurisdiction, and (ii) may only be available to professional or otherwise qualified investors or entities. It is important that distributors and/or potential investors are able to ensure compliance with local regulations prior to making a subscription. Please refer to the offering documentation for additional information.
Unless stated otherwise the source of all information is Man Group plc and its affiliates as of the date on the first page of this material.
Communicated by Man Fund Management UK Limited ("Investment Manager") (company number 03418585) which is registered in England and Wales at One Curzon Street, London W1J 5HB. Authorised and regulated in the UK by the Financial Conduct Authority. This material is distributed pursuant to global distribution and advisory agreements by subsidiaries of Man Group plc ("Marketing Entities"). Specifically, in the following jurisdictions:
Australia: To the extent this material is distributed in Australia it is communicated by Man Investments Australia Limited ABN 47 002 747 480 AFSL 240581, which is regulated by the Australian Securities & Investments Commission (ASIC). This information has been prepared without taking into account anyone's objectives, financial situation or needs.
European Economic Area: Unless indicated otherwise this material is communicated in the European Economic Area by Man Solutions Limited which is an investment company as defined in section 833 of the Companies Act 2006 and is authorised and regulated by the UK Financial Conduct Authority (the "FCA"). Man Solutions Limited is registered in England and Wales under number 3385362 and has its registered office at One Curzon Street, London W1J 5HB, England. As an entity which is regulated by the FCA, Man Solutions Limited is subject to regulatory requirements, which can be found at http://register.fca.org.uk.
Hong Kong: To the extent this material is distributed in Hong Kong, this material is communicated by Man Investments (Hong Kong) Limited and has not been reviewed by the Securities and Futures Commission in Hong Kong. This material can only be communicated to intermediaries, and professional clients who are within one of the professional investors exemptions contained in the Securities and Futures Ordinance and must not be relied upon by any other person(s).
Switzerland: To the extent the material is used in Switzerland the communicating entity is Man Investments AG, which is regulated by the Swiss Financial Market Supervisory Authority FINMA. The Fund has not been registered with FINMA for distribution in Switzerland nor has it appointed a Swiss paying agent or Swiss representative. The Fund and the Fund's materials may only be made available to qualified investors as defined in Article 10 para 3 lit a. and b. of the Swiss Collective Investment Schemes Act. Recipients of this material are advised to satisfy themselves with the respective regulatory rules.
Recipients of this material are deemed by the respective Marketing Entity to be investment professionals and/or qualified investors that have employed appropriately qualified individuals to manage their financial assets and/or are a financial services entity appointed by an investor to provide fiduciary advisory and/or portfolio management services in respect of their financial assets. Marketing Entities will provide prospective and existing investors with product and strategy information prepared by the Investment Manager and assist with queries regarding investment strategies and products managed by the Investment Manager but will not provide investment advice or personal investment recommendations, assess the suitability or appropriateness of any investment products and will not consider the particular circumstances specific to any individual recipient to whom this material has been sent nor engage in any activity which may be deemed to be “receipt and transmission of client orders” or “arranging deals” in investments.
This material is not suitable for US persons.
This material is proprietary information and may not be reproduced or otherwise disseminated in whole or in part without prior written consent. Any data services and information available from public sources used in the creation of this material are believed to be reliable. However accuracy is not warranted or guaranteed. © Man 2017