This actively managed global bond fund invests mainly in investment grade corporate bonds from issues anywhere in the world, as well as high yield and emerging market bonds. At the end of December, it held about 15% in high yield issues, and about 10% in emerging market bonds.
The fund was down 0.1% while its index was up by 0.1%. It was a tough quarter for global bonds with the U.S. Federal Reserve looking to boost rates, while most other central banks looking to do the opposite. Adding to the uncertainty was the continuing selloff in the energy market, which has had a significant impact in the high yield market. One consequence of that has been the market pricing in significant levels of defaults that has resulted in lower bond prices. Spreads have widened considerably and now look fairly attractive, but not without risks. Still, in this environment, the managers have taken an overweight position in high yield, which may result in some shorter term volatility, but is likely to generate stronger long term gains.
In addition, they are also overweight investment grade credits in the U.S. Emerging markets, Canada and Europe are all a neutral weight. The fund’s duration is 5.89 years, with a yield to maturity of 3.8%, both of which are roughly in line with its benchmark.
Longer term, the management team has done an excellent job delivering above average returns with lower volatility. I would expect that to continue over the medium to long term, although the higher weight in high yield may result in some shorter term volatility. This remains a great pick for those looking for global fixed income exposure.