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.
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?
We can divide the pandemic into three periods for markets, namely the initial sell-off over February/March, a broad-based recovery up until about October, and then the rotation within markets/reflation trade from November onwards, as successful vaccines were first announced and then rolled out to the general population.
Coping with the pandemic has been about recognising these phases ahead of time or changing position, and we believe our performance shows this, with the fund returning around 7% over the 12 months to the end of March. We came into the crisis carrying a lot of duration and government bonds, but quickly rotated into higher risk assets as it became clear that central banks and governments were ready to backstop the economy. More recently, our flexibility allowed us to quickly respond to rapidly rising yields, significantly cutting the fund's duration during February.
If anything, the pandemic has reinforced the case for flexible, structurally diversified fixed income investment and the strength of our process. That said, there are long-term trends such as the development of Asian bond markets, which we would naturally expect to allocate more to over time. The pandemic has also accelerated the integration of ESG factors within portfolios, which has been a key feature for us in recent months.
