Winnersrationale

A combination of a highly active approach to security selection and use of hedging tools to protect against downside risks has resulted in consistent outperformance for Nomura’s Global Dynamic Bond Fund.

In the 12 months to November 2021, the Morningstar five-star rated fund returned 1.74% compared to -1.34% for the J.P. Morgan Government Global Bond Index in what was a volatile period for global fixed income markets. On a three- and five-year annualised basis, the Nomura fund returned 9.96% and 7.74%, respectively. The J.P. Morgan index returned 4.65% and 3.40% over the same time frames, respectively.

Much of that performance can be attributed to the US$4.9 billion in assets under management fund’s “go anywhere” approach, which allows for allocations anywhere across global markets and the credit curve. The fund’s positions, based on top-down views by the strategy’s managers over an 18- to 24-month time horizon, are then hedged via equity index put options and other derivatives.

The fund’s managers have proved their mettle during times of market volatility. At the start of 2020, for example, they surmised that the then nascent outbreak of coronavirus in China would have profound implications for the global economy and markets. As a result, the Global Dynamic Bond Fund’s managers sought to hedge against downside risks by increasing the overall duration of the fund and taking safe haven positions in US Treasuries. The fund was also able to profit by trading in and out of the primary issuance of a wide array of investment-grade names at the height of the COVID-19 crisis last year.

Nomura’s Global Dynamic Bond Fund subsequently finished 2020 with a return of 12.18%, marking one of the strategy’s stronger years in terms of performance.

A more recent position taken by the fund managers was in Russian government local currency debt, which has benefited from a recent surge in global commodity prices, with the exposure to the ruble hedged via FX options.

Nomura’s global bond strategy has one of the most experienced portfolio management teams in the market. Richard Hodges, the fund’s lead portfolio manager, has more than three decades of experience at both the Japanese group and previous firms, including Legal & General Investment Management. He is supported by four specialists with expertise in asset allocation, credit selection, convertible bond selection and product design, as well as Nomura’s wider team of over 130 fixed-income professionals globally.

The fund’s impressive performance in recent years has been reflected in the strength of its distribution across private banking platforms in Asia. Inflows into the Global Dynamic Bond fund surged during the period under consideration for the Asset Management Awards for Excellence as the number of private banking platforms carrying the strategy in the region tripled.

Nomura Asset Management is Asian Private Banker’s Best Fund Provider – Global Bond.

Winners rationale

With no end in sight to the low rate environment, investors in search of yield are finding it increasingly challenging to strike a balance between returns, income and risks. This makes Capital Group stand out, with its focus on the higher-yielding part of the fixed income universe.

Part of the success can be attributed to one of the firm’s flagship strategies — Capital Group Global High Income Opportunities (LUX). It was designed to address investors’ need for income in a low interest rate environment, and has successfully fulfilled this role for more than two decades.

Using the right ingredients in the correct combination, the strategy has diverse components: high-yield corporate bonds, hard-currency EM debt, local-currency EM debt, and – more recently – hard-currency EM corporates. All these asset classes have proven rather rewarding over time.

To illustrate its performance: the strategy has a long track record of high income, including an annual average of 7.4% over the last 10 years. For the 12 months ended 31 August 2020, it returned 8.0% before fees in US dollar terms. For the three- and five-year periods, the fund returned 5.4% and 7.8%, respectively, before fees on an annualised basis.

Nimbly swifting positions benefited Capital Group in 2020. When markets saw a significant sell-off in March, the investment team decided to take advantage of both the valuation shifts and the extreme illiquidity. Opportunities included some metals and mining companies, and chemical companies in the high-yield universe. These were hit hard by fears of recession. Those ideas began to perform afterwards, and over two or three months, the overall effect was significant.

Another key difference in the firm’s investment process is that the credit analysts not only provide investment ideas to portfolio managers, but are able to act on the courage of their convictions and invest. This commitment to having credit analysts manage assets makes the roles more attractive, which helped the firm attract and retain the best talent in 2020.

Dedication and commitment to helping the region’s high net worth clients build stronger credit portfolios differentiated Capital Group from its peers, making it Asia Private Banker’s Best Fund Provider – Global bond for 2021.

Winners rationale

An uncertain rate environment in 2019 benefited the more flexible and diversified bond strategies. Exhibiting its strength in providing consistent income and a lower drawdown on capital, Schroders distinguished itself from its global credit peer group in this increasingly challenging environment where generating an attractive yield has become harder than ever before.

In order to deliver a persistent risk-adjusted return, the firm developed a quantitative asset allocation tool which allowed it to flexibly allocate the portfolio without being constrained to any benchmark. This systematic method enabled the asset manager to reduce the drawdown risk of the portfolio by automatically decreasing allocations to countries where the business cycle was deteriorating.

This approach has proven to be highly effective. Since its launch in November 2016, the fund has delivered an annualised return of 6.14% — with a Sharpe ratio of 1.90, as of 30 August 2019. The product also compares favourably to competitors in the global flexible peer group where it has consistently delivered top quartile performance.

A truly global diversified product — free from any inherent regional, sector, or rating biases —has the ability to look for contrarian opportunities. For example, this fund took advantage of the attractive opportunities in European investment grade bonds in early 2019, despite many bearish calls from competitors and sell side analysts.

The fund’s robust investment process was well recognised by its clients. Thanks to a strong inflow from the region’s private banking clients, the fund has surpassed AUM of US$3 billion as it celebrated its third anniversary in November 2019.

Because of its strong inflows and robust fund return performance, in addition to its commitment to private banking clients, Schroder Investment Management is Asian Private Banker’s Best Fund Provider – Global Bond.

Winners rationale

In 2018, rising rates and a flattening yield curve amplified headwinds in global fixed income markets, sending investors in search of flexible and unconstrained strategies to tackle increased market risks and uncertainties.

Rising to the challenge, PIMCO’s global fixed income strategy maintained its preeminent status, contributing significantly to the firm’s US$1.66 trillion in AUM, as at end-December 2018, thanks to the asset manager’s world-class team, well-established processes, and strong performance record.

Following a modest loss in 2008, the fund proved resilient during troubled conditions in late 2011 and mid-2013, as well as last year when it outperformed its benchmark, the Bloomberg Barclays US Aggregate Index, by 27 bps, as of 30 November 2018.

Targeting income, the Global Fixed Income strategy relies on timely top-down and bottom-up calls, is significantly weighted in higher-income spaces — such as high-yield and non-US bonds — and has a tilt to non-agency mortgages relative to other global flexible bonds. As a result, the fund’s monthly yield payment has quenched Asia’s private investors’ thirst for competitive and consistent income without compromised returns.

Throughout 2018, PIMCO’s well-established risk management and distribution teams employed the best income-generating ideas across the global fixed income space, earning the asset manager near-unanimous recognition from Asia’s private banking fund selectors as Asian Private Banker’s Best Fund Provider – Global Bond.