Why would you describe this fund as a 'one to watch' and how could the strategy work in investors' portfolios?
We believe a core strategic bond investment can serve as the bedrock of an investor's portfolio, offering the potential for steady growth and a source of shelter when markets turn volatile. By investing across the whole of the fixed income spectrum, we have the flexibility to both protect capital and generate returns.
Markets are currently pricing in a high degree of optimism, especially in the US, where a successful vaccine rollout is underway. Yet there remains a great deal of uncertainty about the future, from the possibility of new variants to the impact of winding down crisis support packages. In recent weeks, for example, new restrictions across Europe have pushed out any economic recovery, with the summer tourism season in the Mediterranean clearly threatened.
Given this backdrop, the ability to play ‘defence' as well as ‘offence' is crucial. AXA IM's Global Strategic Bond Fund can do exactly this, offering investors ongoing exposure to the recovery through riskier fixed income such as high yield bonds, while also providing protection through the use of government bonds or tactical portfolio hedges.
Can you give a brief overview of your strategy in terms of what you are trying to achieve for investors, your investment process and the make-up of the investment team?
Our Global Strategic Bond Fund aims to deliver an attractive, risk-adjusted return over the economic cycle. This is a long-only, non-benchmarked strategy, structurally diversified across three risk buckets:
- Defensive (e.g. core government bonds, inflation-linked)
- Intermediate (e.g. investment grade credit, periphery governments)
- Aggressive (e.g. emerging market debt, high yield bonds)
We allocate flexibly across these three buckets, with the portfolio offering diversified access to fixed income risk factors (interest rate and credit spreads) throughout the cycle. The portfolio manager has the ability to allocate between 0-100% of the fund in the Defensive bucket and between 0-60% in the Intermediate or Aggressive buckets. The fund has a duration leeway of between 0-8 years.
The AXA IM Global Strategic Bond Fund is managed by Nick Hayes, Portfolio Manager and Head of Active Total Return and Fixed Income Asset Allocation, supported by Nicolas Trindade as his Deputy and a further two portfolio managers who make up the Core Investment Team. In their management of the fund, they draw on the expertise of AXA IM's wider fixed income team, with more than 120 dedicated fixed income investment professionals worldwide. The team uses a single common investment language to understand and debate opportunities across global fixed income, through AXA IM's proprietary Macro, Valuations, Sentiment and Technicals (MVST) investment framework.
We believe fund performance will be driven principally by three inputs, namely our structural diversification across fixed income markets, our tactical asset allocation, and single name credit selection.
Can you identify a couple of key investment opportunities for your fund you are playing at the moment in the portfolio? This could be at a stock, sector or thematic level.
After a strong rally across fixed income markets in 2020, we believe there will be greater differentiation between winners and losers this year. This plays to our strengths in terms of the depth of our bottom-up, fundamental research capabilities, which drives credit selection.
For example, within the investment grade space we have been adding to lower-rated subordinated financials and corporate hybrids, and within the high yield space we have favoured higher quality short-duration names, particularly finding value within the US high yield market in sectors such as Services, Technology, Healthcare and Capital Goods.
Within emerging market debt, we prefer hard currency over local currency, with the latter seeing the majority of the recent sell-off. More specifically, we have less focus on commodities and oil, in favour of the growing EM consumer theme - particularly e-commerce corporates in Latin America and India which should be able to capture this theme amongst the ever-rising middle class. Within EM sovereign bonds, we like the cross-over space amongst sovereigns benefitting from support programmes such as that of the International Monetary Fund.
For now, we also maintain a credit default swap (CDS) position to hedge the higher risk exposure and generate returns during volatile periods.