M&G Global Macro Bond FundRupert Wooster, Deputy Director UK Institutional SalesNovember 2012
Introduction to M&G Fixed One of Europe’s leading Total assets: income asset managers €252bn €152.2bn One of Europe’s largest Investment High Corporate grade yield corporate bond fund bonds: managers €87.3bn €6.2bn One of Europe’s largest Fixed income fixed interest credit research teams analysts based in London 86 Access to Prudential An active global reach resources in the US, Asia and South Africa2 Source: M&G, as at 30 June 2012
M&G Global Macro Bond Fund Fund facts • Fund manager: Jim Leaviss • Deputy fund manager: Mike Riddell • Launch date: October 1999 • Fund structure: UCITS III • Size: £299 million • Sector: IMA Global Bond sector3 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.
Global opportunity set and designed to achieve lower volatility M&G Global Macro Bond Fund Total return 180 73.1% 160 60.7% Credit crisis 60.4% Total return, indexed to 100 52.3% 140 42.5% 120 100 80 60 M&G Global Macro Bond Fund X Acc Emerging market local currency sovereign debt European High Yield Gilts Sterling Investment Grade Corporates Our most flexible bond fund4 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.
Deputy Fund Manager Mike Riddell • 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 charterholder5
S TAY AH EADM&G Global Macro Bond FundMike Riddell, Deputy Fund ManagerNovember 2012
Agenda Introduction to the M&G Global Macro Bond Fund Emerging markets are not a safe haven The US economy – a comeback story Portfolio positioning of the M&G Global Macro Bond Fund7
Introduction to the M&G Global Macro Bond Fund8
Fund manager objectives Aims to outperform the Aims to deliver steady returns average fund in its peer group with lower volatility than the as well as the fund’s average fund in its peer group composite benchmark throughout the economic over the medium term cycle M&G Global Macro Bond Fund Aims to construct a diversified portfolio by Aims to take high conviction investing in a range of liquid views. Not benchmark- fixed interest assets across constrained geographies A fully flexible global bond fund with total return focus9 Source: M&G, as at 13 January 2012.
Emerging market (EM) fund flows close to record this year Inflows into EM fixed interest ($bn) Cumulative flows per asset class (% of AUM) Where are valuations?11 Source : JP Morgan, September and October 2012.
EM external sovereign debt credit spreads are reaching pre-crisis levels 2000 1800 1600 1400 1200 Bps Z-Spread in bps 1000 800 600 400 200 0 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 Barely compensating for liquidity risk, let alone credit risk www.bondvigilantes.com12 Source: Bloomberg, M&G, as at October 2012.
China – the world’s biggest credit bubble since 2009 Annual change in private credit, 2009-11 % of GDP - World Economic Outlook 2012 55 2011 2010 45 2009 35 25 15 5 -5 The question is not if, but when China’s bubble will burst13 Source : IMF Global Financial Stability Report, April 2012
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 Ireland 250 Spain UK Portugal Credit to GDP (%) 2010 US 200 China* HK Japan Korea* 150 100 50 0 1000 11000 21000 31000 41000 51000 61000 Per capita income (USD) The Chinese government has a lot of policy firepower – but the days of 10%+ growth are behind us14 Source : World Bank, IMF, HSBC, January 2012. *China and Korea data have been adjusted by HSBC.
We are not constructive on EM FX Valuations do not look compellingExchange Rate, indexed to 100 280 260JPM Real Broad Effective 240 220 BRL 200 180 160 CLP 140 120 100 MXN Default Rate % 80 60 150 IDR Exchange Rate, indexed to 100 130 MYR JPM Real Broad Effective 110 CNY 90 THB 70 PHP 50 INR 30 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 We have no exposure to EM FX and are short of the ZAR15 Source: M&G, as at 30 December 2011. Source: Bloomberg, as at October 2012.
The USD looks attractively valued Particularly relative to sterling 180Exchange Rate, indexed to 100 170 NZD 160JPM Real Broad Effective 150 140 AUD 130 120 GBP 110 100 90 USD 80 Default Rate % 70 1975-76 sterling UK current balance as % of GDP 4 3 -28% vs US dollar, 1990-91 sterling 2008-09 sterling 2 -29% vs Deutsche mark -20% vs US dollar, -19% vs US dollar, 1 -15% vs Deutsche mark -17% vs euro 0 -1 -2 -3 -4 -5 -6 We have hedged GBP and AUD exposure into USD16 Source: M&G, as at 30 December 2011. Source: Bloomberg, ONS, as at October 2012. Rebased to 100 at 31 January 1970.
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 recession18 Source: M&G, as at 30 December 2011. Source: Barclays Research, as at 2 November 2012.
The US housing market indicates a solid economic recovery US new one family homes months’ supply (3m average) vs US GDP yoy 0 10 8Housing inventory – months’ supply 2 short supply strong growth 6 US GDP YoY (%) 4 4 (inverted scale) 2 6 0 8 -2 10 -4 -6 12 large supply weak growth -8 14 -10 1971 1972 1995 1996 1963 1965 1966 1968 1969 1974 1976 1977 1979 1980 1982 1984 1985 1987 1988 1990 1991 1993 1998 1999 2001 2003 2004 2006 2007 2009 2010 The US economy looks in much better shape than the UK and the Eurozone – so how can this be reflected in the portfolio?19 Source : Bloomberg, 30 at 30 September 2012, Source: M&G, as at as December 2011.
Building materials & construction sector Stock example Cemex EUR 9.625% 2017 • 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 market20 Source: M&G as at 31 October 2012
Portfolio positioning of the M&G Global Macro Bond Fund21
Fund positioning summary M&G Global Macro Bond Fund Key portfolio themes Currency breakdown 65 Low interest rate duration of around Duration 2.5 years 55 Central banks no longer care about Inflation inflation, so we have 18% in linkers 45 Government Quality dominates. Generally we prefer 35 bonds credit over government bonds. % Investment We prefer corporate issuers – although 25 grade covered bonds + RMBS are good value 15 Still overcompensates for default, but High yield valuations have come closer to fair value 5 We are very selective – some corporate Emerging exposure, but short positions in Brazil, -5 markets Indonesia, Russia, South Africa & Turkey USD EUR JPY CHF SEK NOK ZAR AUD NZD GBP We like the USD and have short positions in Fund Neutral position Currencies sterling, the Aussie dollar and Kiwi dollar as well as the SA rand22 Source: M&G, as at 31 October 2012.
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&GSecurities Limited which is authorised and regulated by the Financial Services Authority and provides investment products. The registered office is Laurence Pountney Hill, London, EC4R0HH. Registered in England No. 90776