- Economic data releases across most major economies remained robust in spite of rising political concerns
- The US Federal Reserve (Fed) hiked interest rates by 0.25% but maintained a less hawkish tone relative to market expectations. The UK officially started the 2-year long Brexit process
- Most global government yields ended relatively unchanged, while the US dollar (USD) and credit spreads had mixed performance
Consumer Confidence Remains High In Spite Of Rising Political Concerns
Source: Wellington Management
- The World Bond Fund returns were positive over the course of the month, but ended the month flat, 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. While rates were largely unchanged over the month, our allocation to Mexico, which saw rates move lower, benefitted performance.
- Macro-driven duration1 strategies contributed. Our underweight duration positions in France 10-year and Germany 30-year bonds contributed. Core European yields increased during the month, as there has been a good run of economic data in the Eurozone and inflation touched the European Central Bank’s 2% target. Our overweight duration positions in the front-end of New Zealand contributed as most global sovereign yields, excluding Europe, unwound some of their Trump reflation gains.
- Macro-driven currency strategies contributed. An underweight to the New Zealand dollar (kiwi) contributed, as the kiwi was the worst performer in G10.2 The New Zealand dollar fell due to rapidly rising expectations for a Fed rate hike. Our overweight Mexican peso position also contributed, as most emerging-market currencies priced in a protectionist-lite Trump administration, which supported currencies like the peso.
- Core currency (FX) detracted marginally as it was most notably impacted by a small exposure to the Canadian dollar (CAD)
- Our allocation to credit strategies was neutral over the course of the month as positive contribution from emerging markets and securitized sectors were offset by negative performance from high yield and investment grade credit
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 changed little month over month and continued to maintain a more conservative posture at 1.73 years at 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. However, Trump reflation trades could be unwound if there are increasing doubts over the ability of the new US administration to deliver on expansionary fiscal policies. We are tactically managing duration.
- European political risk is rising as we approach the French presidential elections. We are underweight French sovereigns and the euro.
- Chinese growth momentum is softening as officials attempt to reduce financial/corporate leverage and industrial overcapacity. We are underweight the New Zealand dollar and the Australian dollar.
Currency Exposure (%)
|As of 3/31/17||Fund||Benchmark4|
|New Zealand Dollar||-1.42||0.00|
|Hong Kong Dollar||-1.96||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.