Last Word
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strategy directly from the fund manager himself.
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Axa disclaimer
research and market views together with an explanation of the
The fund invests across the whole short-dated fixed income spectrum (with a maximum of five years maturity), including inflation-linked, investment grade, high yield and hard currency emerging market bonds. The fund manager aims to offer global diversification while mitigating the impact of rising interest rates and volatility. He does this by focusing on capital preservation while maintaining a strong natural liquidity profile and targeting an attractive yield.
Axis analyses the fund from four perspectives to bring you insight,
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Review By Nicola Brittain
The neutral allocation of the fund is 10% in inflation-linked bonds, 60% in investment grade and 30% in high yield and hard-currency emerging market (EM) bonds. The Axa Global Short Duration Bond Fund currently operates with a cautious asset allocation, being overweight investment grade bonds and slightly underweight high yield and EM bonds.
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COMPANY_ Last Word
LOCATION_ London
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“The fund’s global and short-duration characteristics mean the fund is well positioned to mitigate against interest rate increases and volatility.”
YEARS IN INDUSTRY_ 17
at Last Word
JOB TITLE_ Investment Writer
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NICOLA BRITTAIN
A simply run fund that draws from the best ideas
COMPANY_ Square Mile Investment
To view Square Mile Investment Consulting and Research Ltd's disclosure on their involvement on this site, please click here.
JOB TITLE_ Head of Research
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“The fund can buy bonds with maturities of up to five years and the manager will aim to have a roughly even spread of maturities so that around 20% of the fund matures each year.”
This relatively simply-run fund draws the best ideas from across the investment teams, allocating between investment grade corporate bonds in the UK, Europe and the US as well as sub-investment grade corporate bonds in the US and Europe, inflation-linked bonds and emerging market debt.
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YEARS IN INDUSTRY_ 16
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Last Word
Perspective
The neutral allocation of the fund is 10% in inflation-linked bonds, 60% in investment grade and 30% in high yield and hard-currency emerging market (EM) bonds. The Axa Global Short Duration Bond Fund currently operates with a cautious asset allocation, being overweight investment grade bonds and slightly underweight high yield and EM bonds.
The beginning of 2018 was tough for fixed income investors, and there’s little sign that this will improve as we get further into the year. Interest rates are expected to increase further owing to predicted central bank hikes, and we will likely see a structural shift towards higher volatility as central banks continue to wind down their quantitative easing (QE) programmes.
Launched a year ago, the Axa Global Short Duration Bond Fund was designed to be able to deal with situations like this. Unlike many of its competitors, the fund’s short-duration nature – it invests in bonds with a maximum of five years’ maturity – means it organically benefits from interest-rate hikes. This is illustrated by the fact that although the yield on the fund rose from 1.4% at inception to 2.4% at the end of April, it saw a positive total return during that time. The fund currently offers 90% of the yield of the broad sterling credit market for just 25% of its duration.
In addition to a reduction in interest-rate risk, the fund is structured to lower liquidity risk, with, on average, 20% of its bonds maturing each year. This also means Trindade is less likely to become a forced seller (something that tends to occur following a run on investors’ money and a higher-than-expected redemption level). Similarly, as he does not have to sell bonds to implement his active strategies, the fund exhibits a lower turnover, meaning transaction costs are kept to a minimum.
“We have a very cautious outlook for the remainder of 2018,” he says, citing three factors. First, global yields look set to keep rising, as we predict a further three interest rate hikes by the US Federal Reserve and one by the Bank of England in August, as well as the ending of QE by the European Central Bank in December. Second, valuations are expensive across the fixed income market.
And third, volatility is likely to remain at a higher level, owing to both the withdrawal of liquidity by central banks and heightened geopolitical risks. “With this in mind, investors should focus on risk-adjusted returns, rather than outright returns to limit drawdowns” he adds. To date, the fund has predominantly attracted two types of investors – those who want to re-risk out of cash and those who want to de-risk their fixed income allocation while still maintaining an attractive level of yield.
Trindade is lead portfolio manager on the fund, with Nick Hayes his deputy. Trindade joined the firm in 2006 and Hayes in 2010. They also run the flagship unconstrained, flexible bond fund, Axa WF Global Strategic Bonds, which invests across the full fixed income risk spectrum.
A fund designed to ride out macroeconomic strife
AUTHOR_ NICOLA BRITTAIN
Finally, although it holds high yield and EM bonds, Trindade believes the fund’s credit risk is reduced by its short-duration nature (this offers better visibility on company cashflows) and a high level of diversification.
This multi-layered diversification - across issuers, sectors, regions and asset classes - has been key to the fund’s ability to withstand rising yields. It has exposure to the US dollar, sterling and euro interest rate, and although US treasuries and gilts have underperformed this year to date, owing to their more hawkish central banks, bunds outperformed as they are still benefiting from QE, which in turn supported the fund’s performance.
Another defining characteristic of the fund is its flexibility when faced with market changes. In a neutral scenario, Trindade would invest around 10% in inflation-linked bonds, 60% in investment grade and 30% in high yield and EM. Unsurprisingly in the current environment, the fund’s allocation is cautious, with an overweight in investment grade and a slight underweight in high yield and EM bonds. Conversely, should valuations become more attractive, the allocation to high yield and EM combined could be increased to as much as 60%. Trindade does not believe this is likely to happen anytime soon, however.
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Kames Global Diversified Income Fund
Fund
Vincent McEntegart has been managing the Kames Global Diversified Income Fund for six years and is well-versed to the changeable financial climate. Curabitur blandit tempus porttitor. Aenean lacinia bibendum nulla sed consectetur.
Manager
Vincent McEntegart
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The global short-duration strategy is a relatively new one for Axa IM and so as yet largely untested. The component parts are all there, however, and the development of this fund seems like a sensible step in the product range. The managers are looking to achieve returns above cash, with an aspiration of cash (as measured by sterling Libor) plus 2.5% after fees over the long term. While there is not enough performance data to test this aspiration against, we think it should be achievable over the long term given the manager's ability to invest in various different parts of the market as opportunities arise.
More generally, the fund is likely to behave in a relatively defensive manner compared to wider corporate bond markets, performing well relative to the wider corporate bond market during periods of volatility and negative returns, but lagging, perhaps substantially, during periods of strong returns.
We welcome the addition of this fund to their short duration fund range, and see it as a potentially interesting option for more cautious investors who want returns above cash and are willing to take on a higher level of credit risk than that in the investment grade market, but are unwilling to throw themselves fully into high yield.
AUTHOR_ VICTORIA HASLER
“This is a relatively new fund, but one which pulls together many of the component parts and expertise which the team already possess in abundance. We see the launch of this fund as a natural evolution of what the team is already doing, and one which gives investors increased choice and flexibility in the short duration space, an increasingly popular area of the market.”
Limiting the universe to shorter-dated bonds will normally mean that the yield on the fund is a little lower than one investing across the full maturity spectrum of bonds due to the lack of term premium (extra yield which investors demand for lending for longer time periods) available. There are, however, a couple of major advantages to employing this “low duration” approach.
The first is the inherent protection such an approach affords against rising interest rates. With around 20% of the portfolio maturing each year, the manager should be able to re-invest maturing bonds at higher yields, thus benefiting from a potential rising interest-rate environment. The second is that such an approach has, historically, proved less volatile than one investing in the market as a whole. While this is not guaranteed to continue in the future, the lower interest rate risk that shorter-dated bonds carry, and the increased visibility and certainty investors have into corporate earnings over shorter time periods, mean such bonds should usually trade with a less volatile profile than their longer-dated equivalents.
Essentially a short-dated strategic bond fund, this fund has many advantages. These include lower interest rate risk, a natural source of liquidity from a constant stream of maturing bonds, and, potentially, a relatively low level of volatility. All of these make this fund an attractive proposition for investors seeking returns above those available on cash and short-dated investment grade bonds, but without the extra level of risk associated with high-yield bonds. Launched in May 2017, the fund has a relatively short track record but benefits from an experienced manager and a process which is only slightly adapted from that already used in their single market short-dated funds.
Pitched somewhere between short-dated investment grade and short-dated high yield, this fund builds on the capabilities which AXA IM already has to offer in this space. The fund will draw the best ideas from across many of AXA IM’s investment teams, allocating between investment grade corporate bonds in the UK, Europe and the US as well as sub-investment grade corporate bonds in the US and Europe, inflation-linked bonds and emerging market debt. Whilst this may sound like a heady mix, the manner in which the fund is run is relatively simple and should give investors some clarity and a good idea of the results that they can expect.
The fund is managed by Nicolas Trindade, an experienced credit manager who already runs the AXA Sterling Credit Short Duration Bond Fund which operates along similar lines to this fund, albeit with a more limited investment universe.
In keeping with many of the other short duration funds at AXA IM, the bonds in this fund will be selected and organised using a laddered approach. The fund can buy bonds with maturities of up to 5 years and the manager will aim to have a roughly even spread of maturities so that around 20% of the fund matures each year. This means that there is a natural source of liquidity in the fund through bond maturities and it should make it relatively easy for the manager to re-weight across asset classes as needed.
A fund that builds on well-established capabilities
Tom Poulter, head of Quantitative Research, Square Mile Investment Consulting and Research
Square Mile
Perspective
Fund buyers' perspective
Fund buyers post positive returns during challenging times
Market Reaction
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Jonathan Woo_ investment research_ Santander Asset Management
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“There has been considerable structural reform in giant markets like India, China and the Pacific Tiger economies. It’s a time of change from investment in infrastructure to innovation. Baillie Gifford looks for superior growth, meaning its style is suited to this change. They make some debatable valuations but are valiant investors and can spot businesses with great fundamentals early. They are picking the sort of businesses that have the potential to steam ahead and accrue multiple years of earnings growth for investors.”
Scott Spencer_ Investment Manager_ F&C Multi-manager solutions, BMO Global Asset Management
“The key rationale behind Income Maximiser is the delivery of a 7% yield. The use of derivatives in the portfolio means the upside is therefore limited but we find the fund is a lower beta way of getting equity exposure as well as some downside protection.”
“The fund managers of Schroder Income [Nick Kirrage and Kevin Murphy] pick the stocks, and the derivatives for Income Maximiser are then written accordingly. We like the fact that derivatives provide a diversification element and we have a great deal of confidence that the derivatives are run by a separate team. It is a very different skill set and is a USP of theirs.”
Richard Philbin_ CIO_ Wellian Investment Solutions
Mona Shah_ head of collectives_ Rathbones
“After years of lacklustre performance, Asia and the emerging world experienced a resurgence last year, driven by rising commodity prices and a fundamental shift in favour of more cyclical sectors like financials, energy and materials. But many of the fortunes of Asia and emerging markets are driven by sentiment from the West, which was negatively affected by the US election in November. While markets have regained their initial losses, we’ve had no more clarity on what Donald Trump’s policies will mean with regards to global trade and protectionism. For this reason, we believe that diversification should offer benefits in a period where markets are likely to be volatile. In addition, the economies in Asia-Pacific are showing increasing dependence on domestic demand, and we believe funds exposed to growing demand from consumers in China, for example, may be better placed to withstand headwinds from the US.”
Robert Shepherd_ Director_ Bright & Co.
We were on the lookout for something different and, let’s face it, 4% or lower is the norm in this environment. So this is attractive”
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Achievable, sustainable, reliable
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Fund
Manager
Perspective
Fund Buyer
Perspective
This demo version has been optimised for desktop, laptop and tablet. Smartphones, iPhones will be supported in the next version.
to bring you insight, research and market views
together with an explanation of the strategy
directly from the fund manager himself.
Axis analyses the fund from four perspectives
Finally, although it holds high yield and EM bonds, Trindade believes the fund’s credit risk is reduced by its short-duration nature (this offers better visibility on company cashflows) and a high level of diversification.
This multi-layered diversification - across issuers, sectors, regions and asset classes - has been key to the fund’s ability to withstand rising yields. It has exposure to the US dollar, sterling and euro interest rate, and although US treasuries and gilts have underperformed this year to date, owing to their more hawkish central banks, bunds outperformed as they are still benefiting from QE, which in turn supported the fund’s performance.
Another defining characteristic of the fund is its flexibility when faced with market changes. In a neutral scenario, Trindade would invest around 10% in inflation-linked bonds, 60% in investment grade and 30% in high yield and EM. Unsurprisingly in the current environment, the fund’s allocation is cautious, with an overweight in investment grade and a slight underweight in high yield and EM bonds. Conversely, should valuations become more attractive, the allocation to high yield and EM combined could be increased to as much as 60%. Trindade does not believe this is likely to happen anytime soon, however.
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Nicolas is a senior portfolio manager within the London-based Active Credit team. He is responsible for managing both global and sterling credit portfolios amounting to approximately £2bn, as at 30 April 2018. He is the lead portfolio manager of the Axa Sterling Credit Short Duration Bond Fund, Axa Global Short Duration Bond Fund and Axa WF Global Credit Bonds
Senior Portfolio Manager, Axa Global Short Duration Bond Fund
Nicolas Trindade CFA
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This relatively simply-run fund draws the best ideas from across the investment teams, allocating between investment grade corporate bonds in the UK, Europe and the US as well as sub-investment grade corporate bonds in the US and Europe, inflation-linked bonds and emerging market debt.Scroll down to read more...
Limiting the universe to shorter-dated bonds will normally mean that the yield on the fund is a little lower than one investing across the full maturity spectrum of bonds due to the lack of term premium (extra yield which investors demand for lending for longer time periods) available. There are, however, a couple of major advantages to employing this “low duration” approach.
The first is the inherent protection such an approach affords against rising interest rates. With around 20% of the portfolio maturing each year, the manager should be able to re-invest maturing bonds at higher yields, thus benefiting from a potential rising interest-rate environment. The second is that such an approach has, historically, proved less volatile than one investing in the market as a whole. While this is not guaranteed to continue in the future, the lower interest rate risk that shorter-dated bonds carry, and the increased visibility and certainty investors have into corporate earnings over shorter time periods, mean such bonds should usually trade with a less volatile profile than their longer-dated equivalents.
Tom Poulter, head of Quantitative Research,
Square Mile Investment Consulting and Research
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market viewpoints, together with the
to bring you incisive analysis, research and
Fund Manager’s own investment strategy.
Axis interrogates the fund from four perspectives
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The neutral allocation of the fund is 10% in inflation-linked bonds, 60% in investment grade and 30% in high yield and hard-currency emerging market (EM) bonds. The Axa Global Short Duration Bond Fund currently operates with a cautious asset allocation, being overweight investment grade bonds and slightly underweight high yield and EM bonds.
Review By Nicola Brittain at Last Word
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30 April 2018. He is the lead portfolio manager of the Axa Sterling Credit Short Duration Bond Fund, Axa Global Short Duration Bond Fund and Axa WF Global Credit Bonds
Nicolas is a senior portfolio manager within the London-based Active Credit team. He is responsible for managing both global and sterling credit portfolios amounting to approximately £2bn, as at
This relatively simply-run fund draws the best ideas from across the investment teams, allocating between investment grade corporate bonds in the UK, Europe and the US as well as sub-investment grade corporate bonds in the US and Europe, inflation-linked bonds and emerging market debt. Disclaimer »
“The AXA Global Short Duration Bond Fund has done exactly what we expected it to over the last year since we seeded the strategy. It has achieved for us a low but positive return, while avoiding the major volatility exhibited by the bond market. For now, the fund remains a good place to hide from the obvious risks in the bond market and we will treat it as a useful alternative to cash while interest rates remain low. The fund also blends well with our higher risk credit specific funds in our fixed interest allocations.”
Tom Becket_ CIO_ Psigma Investment Management
Jakob Payne_ investment analyst_ Forrester Hyde
“Since launch, the fund has produced a small positive return during a challenging period for fixed interest, more importantly it has behaved as anticipated. We hold a long-standing relationship with Nicolas and his team, given our holding in the AXA Sterling Credit Short Duration Bond Fund. Short duration is a significant area of importance to AXA IM, reflected in the high level of resources and experience within the team. We feel this fund demonstrates value given the Ongoing Charge Figure (OCF) falls toward the lower end of the sector. The fund’s short duration provides it with a defensive positioning relative to peers, particularly against rising bond yields. However, the fund does have a global mandate, allowing Nicolas to invest in areas such as high yield and emerging-market debt.”
Tom Sparke_ investment manager_ GDIM
“Since the launch of the AXA Global Short Duration Bond Fund we have been pleased to see a positive return after fees and a very low level of volatility through some difficult periods for the fixed income market. Over the year, some government bonds have experienced significant drops but this fund has proven very resilient. The diverse range of assets used in the fund spreads the risk and diversifies the portfolio without losing the key element of conviction in its best ideas. It has managed to end up significantly above gilts in its first year and may be a reliable alternative to sovereign bonds in the rising interest rate environment that we are currently in.”
AXA GLOBAL
SHORT DURATION
BOND FUND
and market views together
Axis analyses the fund
strategy directly from the
from four perspectives to
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This relatively simply-run fund draws the best ideas from across the investment teams, allocating between investment grade corporate bonds in the UK, Europe and the US as well as sub-investment grade corporate bonds in the US and Europe, inflation-linked bonds and emerging market debt.
Disclaimer »
Tom Becket_ CIO_ Psigma Investment Management
“The AXA Global Short Duration Bond Fund has done exactly what we expected it to over the last year since we seeded the strategy. It has achieved for us a low but positive return, while avoiding the major volatility exhibited by the bond market. For now, the fund remains a good place to hide from the obvious risks in the bond market and we will treat it as a useful alternative to cash while interest rates remain low. The fund also blends well with our higher risk credit specific funds in our fixed interest allocations."
“Since launch, the fund has produced a small positive return during a challenging period for fixed interest, more importantly it has behaved as anticipated. We hold a long-standing relationship with Nicolas and his team, given our holding in the AXA Sterling Credit Short Duration Bond Fund. Short duration is a significant area of importance to AXA IM, reflected in the high level of resources and experience within the team. We feel this fund demonstrates value given the Ongoing Charge Figure (OCF) falls toward the lower end of the sector. The fund’s short duration provides it with a defensive positioning relative to peers, particularly against rising bond yields. However, the fund does have a global mandate, allowing Nicolas to invest in areas such as high yield and emerging-market debt."
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Jakob Payne_ investment analyst_ Forrester Hyde
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Source: FE Analytics
Disclaimer: performance as at 23 May ’18 for the Z ACC shareclass, net of fees.
Past Performance is not a guide to future performance.
AXA GLOBAL SHORT DURATION BOND FUND PERFORMANCE VS SECTOR AVERAGE %
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Axa Global Short Duration Bonds Z Acc in £
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IA Global Bonds TR in £
AXA GLOBAL SHORT DURATION BOND FUND
PERFORMANCE VS SECTOR AVERAGE %
Source: FE Analytics
Disclaimer: performance as at 23 May ’18 for the Z ACC share class, net of fees.
Past performance is not a guide to future performance.
AXA GLOBAL SHORT DURATION BOND FUND PERFORMANCE VS LIBOR %
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AXA GLOBAL SHORT DURATION BOND FUND
PERFORMANCE VS LIBOR %
Tom Sparke_ investment manager_ GDIM