- Global economic data remained resilient while political risk edged up, driven by US politics and the European election calendar
- Global government bond yields moved lower, the US dollar (USD) moved sideways, and credit spreads ended mixed
- The USD appreciated versus most developed market currencies, driven by anticipation of a Fed rate hike in March and President Trump’s plans to reduce the overall tax burden
Relative Central Bank Balance Sheets (BS) to Weigh on Euro (EUR) vs. Swedish Krona (SEK)
Data in the shaded area is projected. Sources: Bloomberg, Wellington Management
- The World Bond Fund returns were positive over the course of the month as both global government core exposure and opportunistic exposures contributed to returns
- In global government core exposure, our core government bond holdings added to performance as developed market rates moved lower, for the most part after January’s meaningful selloff
- Our overweight front-end New Zealand positions contributed as the Reserve Bank of New Zealand (RBNZ) left policy unchanged and reiterated its dovish bias
- Our overweight USD positions versus a basket of developed market currencies (primarily New Zealand [NZD] & EUR) contributed to results as the USD outperformed on anticipation of a possible Federal Reserve (Fed) rate hike in March
- Our allocation to investment-grade, high-yield, and securitized sectors benefitted from a total return perspective as economic data remained robust globally and credit spreads continued to tighten
- Core currency (FX) detracted marginally, most notably impacted by a small exposure to the Canadian dollar (CAD)
- Macro-driven duration1 strategies detracted. Our underweight positions in United Kingdom (UK) and Germany detracted as European yields fell on Eurozone election risk.
- Macro-driven currency strategies marginally detracted. Our underweight EUR versus SEK position detracted as the Riksbank remains dovish despite Sweden’s recent reflation story, and SEK was the worst performer in the G102
- Emerging market positioning slightly detracted as our short Turkish Lira position was negatively impacted by broad USD depreciation against most emerging-market currencies
Expenses3 % (Class A) Net Op. Exp.: 1.05% Gross Op. Exp.: 1.11%
Performance data quoted represents past performance and does not guarantee future results. The investment return and principal value of the investment will fluctuate so that investors' shares, when redeemed, may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. For more current performance information to the most recent month-ended, click here.
Portfolio Positioning & Market Outlook
- Portfolio duration continued to maintain a more conservative posture at 1.74 years as of February month end. We remain bearish on duration broadly as valuations on government bonds continue to look rich in spite of the recent selloff in rates. We remain bullish on the USD broadly and were once again fully hedged at month end as we expect longer term USD strength in expectation of further US fiscal policy and impending rate hikes from the Fed.
- The global growth cycle is experiencing a synchronized expansion across major economies. We are underweight duration in US, UK, and Japan.
- European political risk is rising as we approach French elections. We are long Germany versus France and peripheral Europe and we are underweight the euro.
- A strengthening Swedish cycle means the Riksbank will not match the European Central Bank’s monetary accommodation. We are overweight the Swedish krona.
Currency Exposure (%)
|As of 2/28/17||Fund||Benchmark4|
|New Zealand Dollar||2.31||0.00|
|Hong Kong Dollar||-2.19||0.00|
A Word About Risk
All investments are subject to risk, including the possible loss of principal. There is no guarantee the Fund will achieve its stated objective. The Fund’s share price may fluctuate due to market risk and/or security selections that may underperform the market or relevant benchmarks. If the Fund’s strategy for allocating assets among different asset classes and/or portfolio management teams does not work as intended, the Fund may not achieve its objective or may underperform other funds with similar investment strategies. Fixed Income risks include credit, liquidity, call, duration, and interest-rate risk. As interest rates rise, bond prices generally fall; these risks are currently heightened because interest rates are at, or near, historical lows. Obligations of U.S. Government agencies are supported by varying degrees of credit but are generally not backed by the full faith and credit of the U.S. Government. Investments in high-yield (“junk”) bonds involve greater risk of price volatility, illiquidity, and default than higher-rated debt securities. Mortgage- and asset-backed securities’ risks include credit, interest-rate, prepayment, and extension risk. Derivatives may be riskier or more volatile than other types of investments because they are generally more sensitive to changes in market or economic conditions; risks include currency, leverage, liquidity, index, pricing, and counterparty risk. Foreign investments can be riskier and more volatile than U.S. investments due to the adverse effects of currency exchange rates, differences in market structure and liquidity, as well as political and economic developments in foreign countries and regions (e.g., “Brexit”). These risks are generally greater for investments in emerging markets. The Fund is non-diversified, so it may be more exposed to the risks associated with individual issuers than a diversified fund. Privately placed, restricted (Rule 144A) securities may be more difficult to sell and value than publicly traded securities, thus they may be potentially illiquid. The Fund may have high portfolio turnover, which could increase the Fund’s transaction costs and an investor’s tax liability.
1 Duration is a measure of the sensitivity of an asset or portfolio’s price to nominal interest rate movement.
2 The Group of Ten (G10) is made up of eleven industrial countries: Belgium, Canada, France, Germany, Italy, Japan, the Netherlands, Sweden, Switzerland, the United Kingdom, and the United States.
3 Expenses stated as of the fund’s most recent prospectus. Net expenses reflect contractual expense reimbursements in instances when these reductions reduce the fund's gross expenses. Contractual reimbursements remain in effect until 2/28/18 and automatically renew for one-year terms unless terminated. Certain contractual reimbursements for Class R6 and Class F shares remain in effect until 2/28/18.
4 Benchmark is the Citigroup World Government Bond Index.
Citigroup World Government Bond Index is a market-capitalization weighted index consisting of government bond markets. Country eligibility is determined based on market capitalization and investability criteria. All issues have a remaining maturity of at least one year.
Bloomberg Barclays U.S. Aggregate Bond Index is composed of securities from the Bloomberg Barclays Government/Credit Bond Index, Mortgage-Backed Securities Index, Asset-Backed Securities Index, and Commercial Mortgage-Backed Securities Index.
Indices are unmanaged and not available for direct investment.