Active Gilt Management

Transcription

1 Active Gilt Management For professional investors only Nine Compelling Reasons for Active Gilt Fund Management Executive Summary The gilt market has one of the highest prevalence of non-economic investors in the world, creating opportunities for active investors. Inefficiencies in the gilt market include issuance anomalies and relative value distortions, and we explain why these persist for both theoretical and practical reasons. Active funds hold the advantage over passive in that they are able to exploit the myriad of inefficiencies and position their portfolios in order to generate outperformance. Passive funds appear to have significantly underperformed the benchmark over the long run, while several active funds have held harmful biases. Active fund pricing must be competitive, and provide after-fee outperformance for investors. The Allianz Gilt Yield Fund is now on its 11th month of consecutive gross outperformance of the benchmark, and is up 1.51% net of fees versus the benchmark since November We believe this demonstrates that the fund has a repeatable investment process and competitive pricing which allow it to deliver consistent outperformance after fees to investors. Introduction UK government bonds are often incorrectly seen by investors to be a rather unexciting and efficient segment of the fixed income universe. In fact, several inefficiencies exist, and this creates opportunities for active managers. Ultimately, the performance track record of the Allianz Gilt Yield Fund indicates that our active management style and investment process enables us to outperform the benchmark on a repeatable basis2. The Allianz Gilt Yield Fund is currently on its 11th month of gross outperformance relative to its benchmark. This note serves to highlight the gilt market s inefficiencies, and how a good active gilt manager can add value for investors.

2 1 Why the passive argument conceptually doesn t work A common argument made in favour of passive funds, based upon a paper by William F. Sharpe in , goes as follows: Passive funds, by definition, hold the market. As such, active managers as a whole (the rest) also own the market. After fees, which are generally lower for passives, the returns on the market portfolio to passive funds are superior to those to all active funds. As interesting as this argument is, there are two clear critiques to this approach. First, this takes an average of active fund managers. However, for every active fund manager that consistently underperforms, there are an equal amount of assets consistently outperforming. An investor who can select the best proven active managers, with a repeatable process for generating outperformance, should be rewarded with returns exceeding the benchmark. Secondly, and even more crucially, the global bond market consists of more than two groups of investors. It can, in fact, be split into: active (economic) investors, passive investors, and non-economic investors. Non-economic investors, which include central banks and insurance companies, make investment decisions based upon mandated guidelines, where objectives include book yield, currency management, or liability hedging. This means that they tend to be rather price-insensitive. These investors are much less important in equity markets, but account for about half of the global bond market, and the existence of non-economic investors adds another group which disrupts the arithmetic of the argument above. The greater share of ownership by non-economic investors creates greater opportunities for active managers to pick up premia on certain securities not held by economic investors. As Figure 1 demonstrates, about 51% of the gilt market is owned by non-economic investors. Figure 1. Who owns gilts? Asset Purchase Facility, 23% Insurance Companies and Pension Funds, 28% Overseas Investors, 27% Banks and Building Societies, 9% Other Financial Institutions, 8% Households, 5% Other, 0% Source: Office for National Statistics (ONS) & Bank of England, as at March The Bank of England s holdings of gilts not related to the Asset Purchase Facility are included in the Banks and building societies category. In actual fact, this is likely an understatement, as Overseas Investors will probably also contain a significant portion of non-economic investors. Based on estimates that half of the global bond market is owned by non-economic investors, applying this to the overseas investors suggest that 65% of the gilt market is owned by non-economic investors. A huge segment of the gilt market is therefore owned by investors that invest for different reasons, creating economic opportunities. Part of the rest is taken up by passive investors, who simply lack the ability to act, and even sometimes create inefficiencies themselves. Active fund managers therefore have a unique advantage of being able to exploit these opportunities. The reasons these anomalies often persist or repeat themselves are outlined below and in the next section. Passive managers also make the argument that markets are informationally efficient; hence active managers cannot add value. However, in 1980 Grossman & Stiglitz proposed a compelling argument in an academic paper 4 that financial markets cannot be informationally efficient in equilibrium. They argue that it is inconsistent for financial markets to be perfectly arbitraged, and at the same time fully reflect all information, as the latter implies that there is no profit to be gained from the economically and informationally costly process of arbitrage. In which case, nobody would arbitrage, and hence the market would not be perfectly arbitraged. They in fact propose a model in which there is an equilibrium degree of disequilibrium. Therefore, even in markets without non-economic investors, it should be possible for an active manager to locate and process information, and take advantage of inefficiencies. The existence of non-economic investors further exacerbates this.

3 2 Examples of non-economic investors impact on the gilt market The starkest example of an inefficiency caused by non-economic investors is seen in the inversion of the UK gilt curve, where the yield on a 50 year bond is considerably less than that on a 25 year bond. As at the end of August 2017, an investor received 17 basis points more yield holding a bond that had 12.5 years less. That increases your yield by 11%, while reducing your interest rate risk by 43%! 5 This primarily occurs because Liability-Driven Investors (LDI) such as insurance companies and pension funds require these assets to match their liabilities, and so will hold it despite having a lower yield. High demand from LDI relative to supply has caused a persistent inversion of the curve. Moreover, as the yield on these bonds falls, and their price increases, longer dated gilts will become a larger part of the benchmark, and passive funds will be forced to own more of them. Meanwhile, active fund managers can position themselves along more attractive sections of the gilt curve. Figure 2. UK Gilt Curve Yield (%) Active managers can move to this part of the curve in search of yield, which offers a higher return for less risk. High demand from LDI relative to supply has caused persistent inversion of the curve Y 10Y 20Y 30Y 40Y 50Y UK Gilt Curve (as of 08/31/17) Source: Bloomberg, as at 31/08/2017. Past performance is not a reliable indicator of future results. This is not to say we will always be underweight ultra long dated gilts if the yield curve is inverted for technical reasons we may expect the curve to become even more inverted in the short to medium-term but over the long term, as value investors, we would tend to be underweight. Another major non-economic investor is the Bank of England (BoE), where BoE policy has created a large number of anomalies and distortions. The BoE s latest Quantitative Easing (QE) programme announced in August 2016, for example, caused a huge move in relative value between individual gilts on the curve. It was due to the BoE s rule that it will not exceed a maximum of 70% ownership of the free float of individual gilts. Pre-QE, gilts with a small free float (i.e. the older, higher coupon gilts) tended to trade at a large premium due to their relative scarcity, which made their valuations unattractive. However, post-qe there was an enormous reversal in relative valuations, where the lower coupon, more recently issued gilts had substantially outperformed on the basis that the BoE had a greater ability to buy these as part of its QE programme. For example, historically the 5% 2025s had yielded slightly less than the 2.75% 2024s, owing to the 5% 2025s having a slightly shorter (despite having a slightly longer maturity) and being a scarce, old, high coupon gilt. In July 2016, the yield on the 5% 2025s crept above the 2.75% 2024s for the first time, perhaps because investors started to price in some possibility of QE, but since QE started, the 5% 2025s hugely underperformed due to the 5% 2025s no longer being eligible for BoE purchase. This almost 10 basis point swing in the yield difference between these two gilts in two months equates to about a 0.88% underperformance in terms of the price of the 5% 2025 relative to the 2.75% 2024, which is a big difference for what is a fairly short-dated gilt with near identical risk characteristics. Figure 3. Quantitative Easing distortions Spread (basis points) QE officially announced. The market had also started pricing this in over the preceeding weeks 03/ / / / / / / /2017 UKT 5 03/07/25 - UKT 2 ¾ 09/07/24 Source: Bloomberg, 04/03/ /09/2017. Past performance is not a reliable indicator of future results.

4 These kinds of distortions represent great opportunities for active fund managers who can exploit them. QE generates a lot of possibilities to add alpha, and any future continuation or reversals of the QE program will likely cause distortions in the market. 3 Inefficient gilt issuances There are some important distinctions between bonds and equities that make a compelling case for active management. One area is new issuance. Evidence suggests that anomalies also exist around Initial Public Offerings (IPO) for equities, however new issuance is much more significant in fixed income compared to equities due to the greater amount of annual issuance relative to the market size. As gilts mature, new gilts are issued, whereas equities have no finite life determined by a maturity date. The chart below indicates the amount of new issuance relative to the size of the gilt market. Figure 4. Annual gilt issuance 35% 30% 25% 20% 15% 10% 5% 0% * DMO Nominal Issuance as a % of UK Government Debt Source: Debt Management Office (DMO), ONS, January 1998 August *2017 figure shows only YTD. Nominal issuance and nominal debt outstanding. As is normal with almost any debt issue, the increased supply of the gilt tends to negatively impact the price in the run up to issuance, in part due to the discount required to attract investors to buy the issue. Afterwards, this discount tends to be steadily removed, as its valuation normalises both relative to surrounding gilts, relative to other parts of the yield curve, and sometimes also relative to other countries bond markets. Syndications of inflation-linked gilts are one type of issuance in the gilt market which we have found to be particularly inefficient. In a syndication, several banks (a syndicate ) are used to issue the gilt, as these issues tend to be rather large. Relating to some of the previous points made, the specific reasons for the persistence of these anomalies are as follows. Reputational risk Corporate issuers tend to issue bonds at the lowest interest rate they can get away with. However, a government cannot afford to take the risk that a syndication goes very badly the Debt Management Office (DMO) does not want to be front page news the next day if an auction or syndication fails (as it did for an uncovered auction in 2009). Therefore on the day of the issue, the DMO will tend to price an issue at more favourable terms than can be achieved on the secondary market. For example, on 11th July 2017 the UKTI 0.125% 2056 was issued at 2 basis points in yield above the UKTI 0.125% 2058, which was almost half a basis point more than the yield differential on the secondary market at the time, where the 2056s were already relatively cheap on the curve ahead off supply. The growth of passive investors Passive investors typically only buy a new gilt on the day that it is issued, and if (as is typical) they receive a lower allocation than they put in for then they need to buy more. Passive investors are particularly prevalent in the index-linked gilt market, forming at least a third and perhaps as much as a half of the entire investor base. Many of the remainder are institutional investors, many of whom will have rigid risk limits, or LDI who are largely value insensitive. A fall in active investors Constrained investment bank balance sheets and the loss of bank prop desks means there are fewer participants who can arbitrage away these anomalies. Meanwhile, the DMO hugely under-allocates to hedge funds, who would arbitrage the inefficiency, since they do not want hedge funds dumping these bonds on the market minutes or hours after a new bond has priced. Buy-side real money investors are typically allocated 65-75% of what they ask for at syndications; anecdotally, at the last index-linked gilt syndication in July, we heard from a bank of one hedge fund who had put in for 600m and received an allocation of a mere 2m. Figures 5 and 6 plot the average price move of both index-linked gilts and conventional gilts immediately before and after syndications, taking 12 years of history. Note that alternative gilts means that we have used a bond with the closest maturity when a new gilt or index-linked gilt does not yet exist prior to the syndication.

5 Figure 5. Index-linked gilt price relative to syndication issue price T-14 T-7 Issue Price End of Day T+7 T+14 Average Average including Alternative Gilts Source: Bloomberg, Debt Management Office ( ), Issue Price Indexed to 100. Past performance is not a reliable indicator for future results. Figure 6. Conventional gilt price relative to syndication issue price T-14 T-7 Issue Price End of Day T+7 T+14 Average including alternative gilts Average Bloomberg, Debt Management Office ( ), Issue Price Indexed to 100. Past performance is not a reliable indicator of future results. Supply events therefore offer clear and persistent anomalies. Active managers are able to adjust their portfolio around these events to protect capital and generate returns. Meanwhile, passives have to own the bonds which experience a selloff, not wishing to risk tracking error. Active managers are also able to pick and choose which new issues they want to be involved in, and how much to buy, offering a further alpha opportunity over passives. 4 Gilt mispricing with regards to macroeconomic fundamentals and financial market conditions The performance of UK government bonds and the shape of the yield curve should depend upon the underlying macroeconomic condition of the UK economy, as well as conditions in global bond markets. As mentioned earlier, the degree of informational inefficiency that exists in bond markets can contribute to mispricing. Depending upon fundamentals, and the ability of the manager, an active manager can generate outperformance through portfolio construction when the shape and level of the curve doesn t reflect the data. Below are some examples of how we have positioned the Allianz Gilt Yield Fund to generate returns. Adding value in managing Active managers are often asked how they generate alpha instead of beta with alpha defined as the ability to select securities with a higher risk-adjusted return, while beta is defined as the volatility (risk) relative to the benchmark. However, it is worth noting to investors that positioning the fund to a higher beta relative to the benchmark is still an active investment decision. By contrast, passives should only have a beta of 1, implying that they have the same risk as the benchmark. The point of active managers is not only to select securities with good risk adjusted returns, but they should also be adapting the amount of risk they are taking within their asset class as economic and financial market developments unfold. The Figure 7 demonstrates the flexibility in the management of the Allianz Gilt Yield Fund, detailing where we made significant changes to fund. This is indicative of how active managers can (and have) positioned their fund long ahead of a gilt rally.

6 Figure 7. Flexible management Long Moved very long Retained long Moved very long Long Increased to neutral 1.5 Tactically long Reduced Long Brought neutral Moved short Reduced long Brought neutral Slight short Short / / / / / / / / / / / Year Gilt Yields (%) Source: Bloomberg, 01/12/ /09/2017. Past performance is not a reliable indicator of future results. Another example is the development of structural factors that has occurred in gilt markets since the Global Financial Crisis. In running their portfolios, active managers can implement structural tilts to their portfolios, which can generate excess returns over passives. Holding a bias to be long relative to the benchmark since 2007, due to a variety of structural factors impacting the global economy and bond markets (debt, demographics and inequality to name a few), has produced excess returns over the benchmark (and hence passives). We highlight some of these here ( That is not to say a gilt fund should be always long, management should be flexible. Again, as Figure 7 shows, we have been. Flexible Curve Positioning The shape of the gilt curve is also impacted by economic fundamentals. For example, faster economic growth generally leads to a steeper yield curve, while a late-cycle economy or one in which a central bank is hiking rates generally contributes to a flatter curve. The chart below demonstrates how we have evolved our curve exposure as economic and market developments unfolded or as the gilt curve changed. Figure 8. Allianz Gilt Yield, Curve Positioning 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% -10% 12/ / / / / / / / / / / / / / / / / / / / / / /2017 Cash Source: Allianz Global Investors, IDS, 01/12/ /09/2017.

7 For example, we held huge 10 year exposure in Q4 2016, due to massive speculation that the UK would hike rates to defend sterling. Huge shorts in 10 year gilt futures caused the 10 year part of the curve to offer the cheapest value relative to neighbouring maturities in a decade. It is also worth noting that beta is not technically the same as. A higher (lower) fund relative to the benchmark should cause a greater (smaller) move when yields change, however some parts of the gilt curve also tend to see greater moves than others in such scenarios. The 5 to 10 year part of the gilt curve for example is perhaps the most volatile, and so in a rally or a selloff, this part of the curve would likely see the biggest move. Hence, a portfolio with neutral, but an overweight to the 5 to 10 year part of the curve, would likely cause the fund to have a beta above 1. Relative Value Active managers focusing on a specific market segment (i.e. gilts) are well positioned to spot relative value trades, which may or may not be caused by distortions from non-economic and passive investors. By actively monitoring neighbouring gilts along the curve, active managers can optimise the risk-adjusted yield on their portfolio within their wider outlook and strategy. To illustrate, below is an example of a trade we have initiated in the Allianz Gilt Yield Fund, showing the yield pick-up from moving from two surrounding gilts on the curve into a third gilt, keeping constant. Figure 9. Relative value trade example - Duration (risk) neutral strategies to boost yields and returns Sold out of 2026s & 2034s and bought 2030s s & 2034s position built to 30% of the fund -2 02/ / / / / / / / / / /2017 Source: Bloomberg, 11/02/ /09/2017. Buy 4.75% 2030s Vs Sell 1.5% 2026s & 4.5% 2034s 5 A broader range of tools for active investors Active managers often have some additional tools available to them which offer opportunities for generating excess returns versus both the benchmark and passives. Use of Derivatives Active bond funds sometimes have the ability to use derivatives within their mandate, which can be a useful tool in the arsenal for positioning the fund. To take the Allianz Gilt Yield Fund as an example, the fund s mandate allows us to use gilt futures in the portfolio to manage and to express yield curve views. Derivatives can be a useful tool for portfolio positioning due to their precision and ability to take a short view. This is something that passive funds cannot utilise. Off-benchmark opportunities There are several bonds issued either directly by the UK government, or explicitly backed by it, which do not lie in the conventional gilt benchmarks. These include UK agencies, some corporate issues, and UK inflation-linked gilts. Active gilt funds are sometimes able to access these government-backed securities, which occasionally demonstrate an inefficiency when these provide a spread over benchmark gilts over and above the illiquidity premium. Some active gilt mandates also provide the flexibility to invest in global government bonds that are equally or more safe from default than gilts, and where the bond market outlook may be more favourable. This allows investors to incorporate into their portfolio a wider part of their outlook for the global government bond market impacting gilts.

8 6 Passive gilt funds cannot outperform the benchmark Passive funds, if they do their job properly, are almost guaranteed to lag behind the benchmark. This is for two reasons. Firstly, if we assume that the passive fund perfectly replicates the benchmark, then the fees, while low, will leave the end investor behind the benchmark. But secondly, our first assumption that the passive fund perfectly replicates the benchmark is unrealistic. The fund has to rebalance over time as prices change, bonds mature and new ones are added, and this can be costly. Using the median monthly returns from the passive funds in the sector, over the last 17 years, the cumulative, compounded divergence caused by these two factors has led to underperformance versus the benchmark of 43.2%! 6 Figure 10. Passive funds offer consistency in underperforming FTSE Gilts All Stocks TR GBP Median Passive Fund in the IA UK Gilts Sector Source: Morningstar, 01/01/ /08/2017. Past performance is not a reliable indicator of future results. 7 But what about the active fees? While every active manager naturally says you should go active, the honest answer is not necessarily. The key is what the fees are. You can have a great fund manager, but if the fees are too high it s very hard to beat a passive fund. We understand the attractiveness of low fee passive funds. By just replicating the performance of the market index with low fees, investors can focus more on asset allocation. But, what if you could access an asset class for low fees, and actually outperform the reference index after fees? Several active managers in the gilt sector have been underperforming the index in recent years. Passive funds in the gilt space have played a role in putting downward pressure on fees for active funds, helping to punish active managers that charge higher fees and fail to add value relative to their passive peers. We can see this by looking at where flows have been going in the last two years. As mentioned in the next section, we believe the case to be that it is not because value cannot be added in gilt markets, but rather that active fees had been too high, and most active gilt managers had harmful biases. Figure 11. Poor active managers have been punished with flows 700,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000, ,000,000 Q Q Q Q Q Q Q Q Q Q Active Gilt Funds Active Gilt Funds (Excluding Allianz Gilt Yield) Passive Gilt Funds Source: Morningstar, 01/01/ /06/2017. Past performance is not a reliable indicator of future results. It is definitely possible to outperform a benchmark gross of fees, as we have shown with the Allianz Gilt Yield Fund. The below table plots our gross of fees performance since Mike Riddell and team started managing the fund.

9 Figure 12. Allianz Gilt Yield Fund Gross Outperformance Excess Return Gross of Fees (%) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD Source: Allianz Global Investors, Bank of New York, 30/11/ /09/2017. Allianz Gilt Yield I Inc Share Class. Figures based on fund accountant revaluation at the end of month. Mike Riddell at Allianz Global Investors started managing this fund on 30th November Previously the fund had been managed by PIMCO. We believe that the reason that the fund has also outperformed net of fees by +1.51% since Mike Riddell and his team took over is because our fees are very low and competitive. While a passive fund may have even lower fees, these funds will probably lag the benchmark over the long term. Active managers use their higher fees to conduct the necessary research into the market inefficiencies outlined above, in order to outperform the benchmark and create value add for clients. 8 Not all active gilt funds are created equally So in theory, the previous 7 points highlight how active gilt managers can generate returns exceeding the benchmark, after fees, for investors. How have active gilt fund managers actually performed? Figure 13. Active versus passive performance Best Performing Fund Worst Performing Fund Median Performing Fund Benchmark - FTSE Gilts All Stocks TR GBP Source: Morningstar, 31/12/ /08/2017. Past performance is not a reliable indicator of future results. As you can see, the average manager has underperformed the benchmark since the end of Some funds over the period did manage to outperform the benchmark at times, however high fees have been a drag on the net return to investors. We maintain that the performance of the active gilt sector over the last decade should not be used as an argument for passive over active, as the average fees have been high and most funds have held harmful biases. The chart below indicates the bias of active gilt funds since These funds have failed to anticipate the structural changes to the global bond market since the Global Financial Crisis, which has contributed to underperformance. Some active gilt funds are also benchmarked against the Citi UK GBI GBP benchmark, which has an even higher modified than the FTSE benchmark, implying that they ve been even more underweight relative to their benchmark. Figure 14. Active gilt fund /03/ /03/ /03/ /03/ /03/ /03/ /03/ /03/2017 Modified - median active gilt fund versus the FTSE Actuaries Conventional All Stocks Benchmark Source: Evestment, FTSE, Q Q This chart uses all of the available data from Evestment, which does not include all of the IA Gilt Sector funds. Benchmark is the FTSE UK Actuaries Conventional Gilts All Stocks TR GBP. Past performance is not a reliable indicator for future results.

10 As alluded to at the very start, we would stress that it is not about the average manager here it is about selecting the best active manager that has proven they can deliver outperformance on a consistent basis. 9 A sector leader - the Allianz Gilt Yield Fund As alluded to at the very start, we would stress that it is not about the average manager here it is about selecting the best active manager that has proven they can deliver outperformance on a consistent basis. Duration The fund manages within a band of 2 years around that of our benchmark. This allows us to increase or decrease the amount of interest rate risk that we take, depending upon the prevailing inefficiencies and market outlook. Duration positions should not, however, dominate relative performance. Curve The fund also holds full flexibility to invest anywhere along the UK government yield curve, providing us with the capability to position the fund to profit from the inefficiencies listed above. Relative Value This strategy involves assessing how bonds located next to each other on the yield curve are priced. A full understanding of what price differentials exist, and the cause of the differential, enables the fund to optimise yield, as part of the broader portfolio construction, following dislocations. Inflation The fund s mandate allows it to hold inflation-linked bonds that are issued by the UK government, but which are technically not part of our benchmark. This allows us to incorporate aspects of our macroeconomic inflation outlook in a more accurate manner, as well as picking up premia from technical inefficiencies that we have highlighted above. At least 80% of the fund s holdings must be conventional gilts. Cross Market The fund s mandate also allows us to incorporate aspects of our global economic outlook, and express this in government issuers that are equally safe, or safer, from default. The fund is allowed to invest in any government bond of an equal or higher credit rating to the UK. At least 80% of the fund s holdings must be conventional gilts, and all foreign-denominated bonds are 100% hedged back to sterling. Summary The gilt market has one of the highest prevalence of non-economic investors in the world, creating opportunities for active investors. Inefficiencies in the gilt market include issuance anomalies and relative value distortions, and these persist for both theoretical and practical reasons. Active funds hold the advantage over passive in that they are able to exploit the myriad of inefficiencies and position their portfolios in order to generate outperformance. Passive funds appear to have significantly underperformed the benchmark over the long run, while several active funds have held harmful biases. Active fund pricing must be competitive, and provide after-fee outperformance for investors. The Allianz Gilt Yield Fund is now on its 11th month of consecutive gross outperformance of the benchmark, and is up 1.51% net of fees versus the benchmark since November We believe this demonstrates that the fund has a repeatable investment process and competitive pricing which allow it to deliver consistent outperformance after fees to investors.

11 1 Allianz Global Investors, Bank of New York, 30/11/ /09/ Allianz Global Investors, Bank of New York, 30/11/ /09/ William F Sharpe, The Arithmetic of Active Management, 1991, Financial Analysts Journal. 4 Grossman.S.J & Stiglitz.J.E, On the Impossibility of Informationally Efficient Markets, 1980, The American Economic Review, Vol.70 No.3, Allianz Global Investors, as at 30/08/ Allianz Global Investors. 7 Allianz Global Investors, Bank of New York, 30/11/ /09/2017. Disclaimer Investing involves risk. The value of an investment and the income from it may fall as well as rise and investors might not get back the full amount invested. Investing in fixed income instruments may expose investors to various risks, including but not limited to creditworthiness, interest rate, liquidity and restricted flexibility risks. Changes to the economic environment and market conditions may affect these risks, resulting in an adverse effect to the value of the investment. During periods of rising nominal interest rates, the values of fixed income instruments (including short positions with respect to fixed income instruments) are generally expected to decline. Conversely, during periods of declining interest rates, the values of these instruments are generally expected to rise. Liquidity risk may possibly delay or prevent account withdrawals or redemptions. Past performance is not a reliable indicator of future results. If the currency in which the past performance is displayed differs from the currency of the country in which the investor resides, then the investor should be aware that due to the exchange rate fluctuations the performance shown may be higher or lower if converted into the investor s local currency. The views and opinions expressed herein, which are subject to change without notice, are those of the issuer companies at the time of publication. The data used is derived from various sources, and assumed to be correct and reliable, but it has not been independently verified; its accuracy or completeness is not guaranteed and no liability is assumed for any direct or consequential losses arising from its use, unless caused by gross negligence or wilful misconduct. The conditions of any underlying offer or contract that may have been, or will be, made or concluded, shall prevail. This is a marketing communication issued by Allianz Global Investors GmbH, an investment company with limited liability, incorporated in Germany, with its registered office at Bockenheimer Landstrasse 42-44, Frankfurt/M, registered with the local court Frankfurt/M under HRB 9340, authorised by Bundesanstalt für Finanzdienstleistungsaufsicht ( Allianz Global Investors GmbH has established a branch in the United Kingdom, Allianz Global Investors GmbH, UK branch, 199 Bishopsgate, London, EC2M 3TY, which is subject to limited regulation by the Financial Conduct Authority ( Details about the extent of our regulation by the Financial Conduct Authority are available from us on request. The duplication, publication, or transmission of the contents, irrespective of the form, is not permitted Contact details investor.services@allianzgi.co.uk Web: Telephone: Address: Allianz Global Investors GmbH, UK Branch, 199 Bishopsgate, London, EC2M 3TY