Oportunidades Renta Fija Andy Wells, Fidelity, enero 2013


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Presentación de la estrategia de Andrew Wells, Global CIO
Fixed Income, Investment Solutions
and Real Estate de Fidelity

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Oportunidades Renta Fija Andy Wells, Fidelity, enero 2013

  1. 1. 2013: opportunities andchallenges in fixedincome investingMadrid Perspectives Event17 January 2013 Andrew Wells Global CIO Fixed Income, Investment Solutions and Real EstateThis presentation is for investment professionals only and should not be relied upon by private investors.
  2. 2. Agenda Macro outlook Inflation, rates and sovereigns Credit, high yield and emerging debt Conclusion Fixed income fund types for various market scenarios2
  3. 3. Fixed income asset class returns in 2012Total returns in 2012 (Euro-hedged) European High Yield 26.6 Global Emerging Market Debt 21.5 US High Yield 15.0 Euro Corporates 13.0 Global Corporates 10.5 Global Inf lation-linked Government 7.0 Spanish Government Bonds 6.0 German Bunds 4.5 US Treasuries 2.1 0.0 5.0 10.0 15.0 20.0 25.0 30.0 Total return (%)Source: BoA Merrill Lynch, 31/12/2012. Total returns of market indices in Euro-hedged terms3
  4. 4. More positive macro economic newsEconomic surprise indices Leading economic indicatorsSource: FIL Fixed Income Quantitative Research, 03/01/2013.4
  5. 5. Massive debt burdens are likely to slow the recoveryUS debt / GDP by sector % UK gross debt / GDP (excluding Bank debt) % of GDP 500 450 UK Government 400 350 Households 300 250 Non-financial 200 companies 150 100 Non-bank financial 50 companies 0 88 90 92 94 96 98 00 02 04 06 08 10 12Source: Haver Analytics, 31/12/2011; ONS, Citigroup, 31/03/20125
  6. 6. US:Positive but low growth, with housing recoveringUS National Multi Housing Council quarterly housing survey Apartment Market Conditions: Apartment Market Conditions: Sales Volume Index (Above 50 = Increasing) Debt Financing Index (Above 50 = Improving)Source: Bloomberg, National Multi Housing Council, 30/06/20126
  7. 7. Europe:A downward spiral of structural problems and austerityLong-term unemployment across the Manufacturing PMIsEuro area (m/m change, 000s) Historic real GDP growth per annum (%)Sources: Sources: Haver Analytics, Bloomberg, RBC Capital Markets, 31/10/ 20127
  8. 8. China:Slower growth but the trend is bottomingChinese industrial production growth Chinese manufacturing PMIsSource: Haver Analytics, NBS, Datastream, 30/11/2012.8
  9. 9. Summary: macro outlook Signs of better growth coming through in US but Europe still under a cloud Deleveraging across government and personal sectors will slow the pace of economic recovery Emerging market growth being reset at a lower but still healthy levelSource: FIL Limited, 03/01/20139
  10. 10. QE driving an inflationary tail-riskCentral Bank balance sheets US Federal Reserve’s preferred measure of inflation expectations3.5 450 4.0 % Feds 5 year forward breakeven inflation rate 4003.0 350 3.52.5 Ongoing QE 3002.0 250 3.01.5 200 150 2.51.0 1000.5 50 2.0 QE20.0 0 Operation QE1 Jul 07 Jul 08 Jul 09 Jul 10 Jul 11 Jul 12 Twist 1.5 US Fed: Total Assets (US$ trillion) 06 07 08 09 10 11 12 ECB: Total Eurosystem liabilities (EUR trillion) Bank of England: Holdings of government securities (£ billion, R.H.S)Source: Bloomberg. 05/11/2012.10
  11. 11. Further monetary stimulus is likelyUS Core Personal Consumption Money velocity: Japan and USExpenditure (PCE) NOMINAL GDP/MONEY SUPPLY (M2) INDEXED TO 100 AT START OF RECESSION. US RECESSION STARTED Q2 2008. JAPAN RECESSIN STARTED Q2 1991Source: Bloomberg, Deutsche Bank (31/07/2012)11 This presentation is for Investment Professionals only and should not be relied upon by private investors
  12. 12. DM sovereign credit fundamentals are deteriorating Govt. Gross Debt (% GDP) 40% 65% 90% 115% 120% 220% 320% 0% - 1% 2007 2007 Govt. deficit (% GDP) - 2% 2007 - 3% 2007 2011 - 4% - 5% - 6% 2011 - 7% 2011 - 8% 2011 - 9% US UK Euro Area JapanSource: Datastream, IMF World Economic Outlook. 31/08/2012.12
  13. 13. Core government bonds yields are artificially lowUS Treasury yields UK Gilt yieldsBund yields Fidelity duration models Difference between market level and model fair value US 1.25% UK 1.04% Euro 0.71%Source: Bloomberg, FIL Fixed Income Quantitative Research, 03/01/201313
  14. 14. Value in Spanish sovereign debtYield spread of 10 year Spanish Government Bonds over 10 year German Bunds 700 600 Spread (basis points) 500 400 300 200 100 0 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13Source: Bloomberg, 09/01/2013.14
  15. 15. Summary: inflation, rates and sovereigns Inflationary tail risks exist, driven by ultra-easy monetary policy Developed market sovereign credit quality is deteriorating Core government bond yields offer little value but may remain depressed Spanish government debt is supported by an accommodative ECB and the OMT backstopSource: FIL Limited, 03/01/201315
  16. 16. Credit fundamentals are sound but turningTrailing 12 Month Rating Drift 10% 0%- 10%- 20%- 30%- 40% Dec- 07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12 Moodys Europe Direction Moodys Global Direction Fidelity Fundamental Rating Fidelity Fundamental Rating: Corporate Fidelity Fundamental Rating: Financials + Government + StructuredSource: FIL Ltd, Moody’s. 31/10/2012. Ratings Drift = (Issuer upgrades – Issuer downgrades) / Rated Issuers16
  17. 17. Spreads are attractive, even if yields are at lowsGlobal high yield Global investment grade corporates Yield (%) Yield (%) Spread (bp) Spread (bp)Source: FIL Limited, Bloomberg (31/10/2012)17 This presentation is for Investment Professionals only and should not be relied upon by private investors
  18. 18. Opportunities in European credit European non-financial spread to Bunds European spread dispersion by quality 1000 800 600 400 200 AA A 0 06/2007 06/2008 06/2009 06/2010 06/2011 06/2012 BBBSource: Morgan Stanley Research, BoA Merrill Lynch Euro Corporate Bond index (ER00), January 201318 18
  19. 19. Some signs of releveraging, especially in cyclicalsUS Corporate Gross Leverage US Corporate Cash / Debt 4.06% 10%Source: Morgan Stanley – Leverage Finance Chartbook, 13/11/2012.19
  20. 20. High yield:Low default rates but high pricesHigh yield default rates and spreads Basis2000 points US high yield 20% US High Yield Spread spread (LHS)1800 Avg Spread: 566 18% US Speculative Grade Default Rate (RHS)1600 Baseline Forecast US high yield 16% Pessimistic Forecast default rate1400 (RHS) 14%1200 12% Pessimistic forecast1000 10% 800 8% 600 6% 400 4% Optimistic forecast 200 2% 0 0% 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13Source: FIL Ltd, Moodys US and Europe Speculative Grade Default Rates (issuer weighted). Bloomberg, BofA Merrill Lynch US High Yield Index (to 31/10/2012)20
  21. 21. EM debt:Improving sentiment should be good for currenciesEM PMIs and new orders/inventories ratioSource: FIL Limited, Bloomberg, J.P. Morgan, 31/12/201221
  22. 22. Summary: Credit, high yield and emerging debt Credit fundamentals are strong and investment grade spreads attractive Early signs of releveraging must be taken seriously Low levels of default continue to support high yield investment Persistent improvement in global business sentiment will benefit local currency emerging market debtSource: FIL Limited, 03/01/201322
  23. 23. Conclusions Macro outlook for 2013 and beyond may disappoint as deleveraging across government and personal sectors slows economic recovery Inflationary tail risks exist, driven by ultra-easy monetary policy Developed market sovereign credit quality is deteriorating; core government bond yields offer little value but may remain depressed Credit fundamentals are strong and investment grade spreads attractive, but early signs of releveraging must be taken seriously Low levels of default support high yield investment Persistent improvement in global business sentiment will benefit emerging market debt Opportunities in corporate credit, challenges in government yieldsSource: FIL Limited. 03/01/2013.23
  24. 24. Fixed income fund types for various market scenarios Macroeconomic Scenario Most attractive bond Fidelity Funds that will Appropriate new asset classes benefit Fidelity products 1) Our base Case: low growth/low rates (highest • High yield • FF Euro High Yield • FF EM Local Currency probability) • EMD (especially local • FF US High Yield Debt (due Q1 2013) • Low growth, low interest rates, more QE currency and corporate) • FF Asian High Yield • FF EM Corporate Debt • Low default rates • Investment grade credit • FF Global High Yield Focus (due Q1 2013) • Continued search for yield favouring spread product • Inflation-linked bonds (in • FF EM Debt • Brazil Strategic Bond (pilot • Total returns lower than 2012 as headroom for spread anticipation of longer term • FF Euro Bond due Q1 2013) compression is now lower QE effects) • FF Euro Corporate Bond • FF Global Income 50% IG / • HY, IG credit and EMD to outperform government bonds • FF Sterling Bond 35% HY / 15% EMD (due • FF Asian Bond Q1 2013) • FF Global Strategic Bond 2) Tail risk: better macro conditions (low probability) Rising interest rates • FF Global High Grade Income • Material solutions to Eurozone crisis take effect • FF China RMB Bond • DM growth and investor sentiment recover sharply •Shorter duration • FF Euro Short Term Bond • Rising government bond yields in anticipation of rate •Absolute return • FF high yield range rises and a cessation of QE • FIF MoneyBuilder Income • Fears of rising inflation Reduced Duration • EM growth accelerates further • FAST FI Diversified Alpha • Longer duration bonds underperform; credit partly • FF Global Strategic Bond protected by spread compression; inflation-protection becomes attractive Rising inflation • FF Global Inflation-linked Bond •Inflation-linked bonds • FF EM Inflation-linked Bond 3) Tail risk: worse macro conditions (lowest Bad recession • FF Global Strategic Bond probability) •Strategic bonds • FF Global High Grade Income • DM economies lurch back into bad recession •High quality sovereigns • EM growth slows further • Economic contraction delays recovery in sovereign debt levels, leading to more sovereign credit Increasing sovereign risk • FF Global Strategic Bond downgrades •Strategic bonds • FF Global High Grade Income • Default rates rise dramatically •High quality sovereigns • Risk assets underperform, particularly high yield and financials; high quality, liquid sovereigns outperformSource: FIL Limited, 31/12/2012.24
  25. 25. 3 Year SICAV Performance to 31 December 2012 FF Sterling Bond Fund 8.5 2 BofA ML Sterling Large Cap 9.1 FF US Dollar Bond Fund 8.0 1 BofA ML US Corp & Govt Master Large Cap 6.7 *FF Global Inflation-Linked Bond Fund 4.5 4 BarCap World Government IL Bonds 1 to 10 year Index 5.0 FF International Bond Fund 5.2 2 Barclays Global Agg G5 x MBS 4.9 FF Emerging Market Debt Fund 10.7 3 JPM EMBI Global 12.9 FF US High Yield Fund 10.2 2 BofA Merrill Lynch US High Yield Blended Index 11.5 FF Euro Short Term Bond Fund 3.9 1 BofA Merrill Lynch 1-3 EMU Broad Market 3.1 FF Euro Corporate Bond Fund 7.5 Fund (Net, three year %) 1 BofA ML Euro EMU Corporate 6.5 Comparative index (%) FF Euro Bond Fund 6.5 1 BofA ML EMU Large Cap Inv Grade 5.5 FF MoneyBuilder European Bond Fund 7.2 1 10.0% BofA ML Euro HY Const; 90.0% BofA ML Euro Large Cap 6.2 FF European High Yield Fund 10.4 2 BofA ML Euro High Yield Constrained 12.1 FF Asian High Yield Fund 9.7 1 BofA ML Asian $ HY Corp Constrained 12.9 % 0 5 10 15 Source: FIL Limited, Morningstar Workstation, 31/12/2012. Performance is net of fees and in fund base currency. Calculation basis is NAV-NAV with gross income reinvested. Quartile rankings are based on 3 year performance. Excludes institutional and money market funds. Past performance is not a reliable indicator of future results. The value of investments can go down as well as up and investors may not get back the amount invested. * FF Global Inflation-linked Bond Fund’s benchmark is 1-10 years whereas the peer group uses longer all maturities inflation-linked benchmarks * * FF Asian High Yield Funds Morningstar sector is the Fixed Income Asia Pacific sector composed of 9 other funds only, none of which is a high yield bond fund. Fidelity Internal Information2525 25
  26. 26. Important informationThis information is for Investment Professionals only and should not be relied upon by private investors. It must not be reproduced or circulated without prior permission. Thiscommunication is not directed at, and must not be acted upon by persons inside the United Kingdom or the United States and is otherwise only directed at persons residing injurisdictions where the relevant funds are authorised for distribution or where no such authorisation is required. Fidelity/Fidelity Worldwide Investment means FIL Limited and itssubsidiary companies. Unless otherwise stated, all views are those of Fidelity. Fidelity only offers information on its own products and services and does not provide investmentadvice based on individual circumstances. Fidelity, Fidelity Worldwide Investment, the Fidelity Worldwide Investment logo and F symbol are trademarks of FIL Limited. Fidelity Fundsis an open-ended investment company established in Luxembourg with different classes of shares. Reference to FF before a fund name refers to Fidelity Funds. Holdings can varyfrom those in the index quoted. For this reason the comparison index is used for reference only. This document may not be reproduced or circulated without prior permission. Nostatements or representations made in this document are legally binding on Fidelity or the recipient. Past performance is not a reliable indicator of future results. The value ofinvestments can go down as well as up and investors may not get back the amount invested. For funds that invest in overseas markets, changes in currency exchange rates mayaffect the value of an investment. Foreign exchange transactions may be effected on an arms length basis by or through Fidelity companies from which a benefit may be derived bysuch companies. Data Source - © 2013 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) maynot be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or lossesarising from any use of this information. The value of bonds is influenced by movements in interest rates and bond yields. If interest rates and so bond yields rise, bond pricestend to fall, and vice versa. The price of bonds with a longer lifetime until maturity are generally more sensitive to interest rate movements than those with a shorter lifetime tomaturity. The risk of default is based on the issuers ability to make interest payments and to repay the loan at maturity. Default risk may therefore vary between different governmentissuers as well as between different corporate issuers. The investment policy of this fund means it can be more than 35% invested in Government and public securities. These canbe issued or guaranteed by other countries and Governments. For a full list please refer to the funds prospectus.We recommend that you obtain detailed information before takingany investment decision. Investments should be made on the basis of the current prospectus, which is available along with the current annual and semi-annual reports free of chargefrom our distributors, from our European Service Centre in Luxembourg;For the purposes of distribution in Spain, Fidelity Funds is registered, with the CNMV Register of ForeignCollective Investment Schemes under registration number 124, where complete information is available from Fidelity Funds authorised distributors. The purchase of or subscriptionfor shares in Fidelity Funds shall be made on the basis of the Key Investor Information Document (KIIDS) that investors shall receive in advance. The Key Investor InformationDocument (KIIDS) is available free of charge and for inspection at the offices of locally authorised distributors as well as at the CNMV ; Issued by FIL Investments International (FSAregistered number 122170) a firm authorised and regulated by the Financial Services Authority. FIL Investments International is a member of the Fidelity Worldwide Investment groupof companies and is registered in England and Wales under the company number 1448245. The registered office of the company is Oakhill House, 130 Tonbridge Road,Hildenborough, Tonbridge, Kent TN11 9DZ, United Kingdom. Fidelity Worldwide Investment’s VAT identification number is 395 3090 35.FIPM 38226