Can you give a brief overview of Capital Group Global Total Return Bond (GTRB) strategy in terms of what you are trying to achieve for investors, your investment process and the make-up of the investment team?
The primary objective of the strategy is to maximise total return over the long term, through investing globally across investment grade and high yield bonds of governmental, supranational and corporate issuers and in other fixed income securities.
The current low interest rate environment, alongside improving global growth conditions as we recover from Covid-19, is a challenge to fixed income investors, especially as the search for yield can add risk. Our total return approach is designed to provide investors with an attractive total return without increasing the volatility budget. The portfolio combines our traditional strength in bottom-up research with a rigorous focus on risk management to capture the best opportunities across the global fixed income universe. The strategy may also invest in financial derivative instruments, which help manage volatility and liquidity, for investment purposes. The four portfolio managers build a portfolio from the strongest ideas of our global research team with a rigorous focus on contribution to risk across positions.
The portfolio management team has an average of 26 years of experience, with three focused on the full global opportunity set, alongside one specialist high yield manager.
The total return approach ensures a high conviction portfolio of only the best ideas. The team start with investment ideas - rather than a benchmark - and build the portfolio based on the level of conviction and correlation with other ideas. A rigorous risk analysis framework helps to manage volatility.
How have you been trying to weather the storm caused by the Covid-19 pandemic and what could be the longer-term implications for your strategy?
The GTRB strategy launched in late September 2020 at a time when markets were mid-way through the recovery. As a firm, we adjusted well to the shift in working conditions, and the continued flow of strong ideas from our analysts is testament to the strength of research and communication across the investment team. We were thrilled to be able to coordinate a successful launch of this strategy despite working from home globally since early March 2020.
The focus on total return enables us to build a portfolio of only the highest conviction ideas, influenced less by the composition of global bond indices or the level of debt countries or companies may have outstanding. This flexibility to invest in the strongest opportunities across markets will be key as we look to balance expectations for persistent low interest rates, alongside the recovery in global growth.
While bond yields have risen sharply recently, financial conditions remain accommodative, which we expect to continue given the Federal Reserve's (Fed) commitment to meeting employment and long-term inflation targets. The market appears to be pricing rate hiking and/or tapering in 2022, earlier than the Fed has indicated. Understanding the path of the interest rate cycle is a key focus for the strategy given the opportunities created by this dislocation.
Can you identify a couple of key investment opportunities for your strategy you are playing at the moment in the portfolio? This could be at a stock, sector or thematic level.
The GTRB strategy is broadly positioned to benefit from a return to growth globally, with exposure to those markets/companies that are well positioned to benefit from growth and, importantly, with robust fundamentals.
With regard to interest rates, we believe central banks will remain accommodative for the medium term and perhaps longer than has been implied by recent market movements; we therefore look to benefit from that through rates and curve positioning as we could see further steepening should growth remain strong whilst the Fed maintains low policy rates. The strategy is positioned towards the mid-point of its duration range of 0-10 years, reflecting cautious views regarding the recent back up in yields and expectations for further movement in interest rates.
As the strategy seeks to maximise total return whilst moderating volatility, the portfolio is balanced through cautious positioning in USD and EUR rates, with some exposure to high yield corporate, local currency emerging market (EM) debt and EM currencies, which we believe continue to offer attractive long-term value on a selected basis. We take a diversified approach across EM debt, with exposure to relatively higher quality markets such as China, Malaysia and Russia, alongside diversified exposure to a bucket of lower rated, higher yielding markets.
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Risk factors you should consider before investing:
• This material is not intended to provide investment advice or be considered a personal recommendation.
• The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment.
• Past results are not a guide to future results.
• If the currency in which you invest strengthens against the currency in which the underlying investments of the fund are made, the value of your investment will decrease. Currency hedging seeks to limit this, but there is no guarantee that hedging will be totally successful.
• Depending on the strategy, risks may be associated with investing in fixed income, derivatives, emerging markets and/or high-yield securities; emerging markets are volatile and may suffer from liquidity problems.
• The strategy may also invest is financial derivative instruments for investment purposes, hedging and/or efficient portfolio management.
This material, issued by Capital International Management Company Sàrl ("CIMC"), 37A avenue J.F. Kennedy, L-1855 Luxembourg, is distributed for information purposes only. CIMC is regulated by the Commission de Surveillance du Secteur Financier ("CSSF" - Financial Regulator of Luxembourg) and is a subsidiary of the Capital Group Companies, Inc. (Capital Group), also authorised and regulated in the UK by the Financial Conduct Authority. While Capital Group uses reasonable efforts to obtain information from third-party sources which it believes to be reliable, Capital Group
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