FIXED INCOME. OCTOBER 2016 For Professional Clients/Investment Professionals only

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1 FIXED INCOME OCTOBER 2016 For Professional Clients/Investment Professionals only

2 Short Duration Bonds, a way to navigate market movements Investors seeking a way to mitigate the impact of market volatility - because of potentially rising interest rates - and an attractive risk-return profile, could find a solution with short duration bonds. AXA Investment Managers short duration bond funds have performed better than the broader all maturities markets in terms of risk adjusted return, delivering an average of 79% of the underlying markets return with just 49% of the volatility*. Chris Iggo Chief Investment Officer, Fixed Income Economic background Several years on from the global financial crisis, we are still living with the effects of an unprecedented monetary response, including record low government bond yields and tighter credit spreads. As many major central banks remain on the asset purchase path, we believe the trends of lower yields and tighter spreads look likely to continue for now. * Since inception of each strategy. Source: AXA IM, BofA ML and JP Morgan for yields to worst and volatility of funds and underlying markets as at 31 March Inception dates for AXA WF US Credit Short Duration Investment Grade: September 2013, AXA WF Euro Credit Short Duration: January 1999, AXA IM FIIS Europe Short Duration High Yield: August 2011, AXA IM FIIS US Short Duration High Yield: April 2004, AXA Sterling Credit Short Duration: November 2010, AXA WF Emerging Market Short Duration Bonds: September Some funds mentioned may not be available in all jurisdictions, please contact the asset manager for more information or refer to the registration map on The figures provided relate to previous months or years and past performance is not a reliable indicator of future performance. 2 SHORT DURATION RANGE

3 There are however risks ahead, which stem from the fact that the bond market is currently overvalued compared with history, and almost completely controlled by central banks: High market volatility High current market volatility has been fuelled by ongoing political and economic uncertainty, as well as the distortion of asset prices through quantitative easing. Volatility could potentially rise further due to the divergence of central bank policies and the ongoing impact of China s economic slowdown. A low yield environment Quantitative easing policies across the world have pushed government yields to historically low levels. Renewed stimulus from certain central banks such as the European Central Bank, Bank of England and the Bank of Japan, are making it more difficult for investors to secure decent returns without taking on excessive risk. Interest rates should eventually rise While we currently face a low interest rate environment, should central bank policies across the world prove to be successful and global economic growth picks up, investors are likely to face rising interest rates. This should result in a rise in yields as well as market volatility. The mentioned information may be amended at any time without notice. Due to the simplification the information can be subjective. SHORT DURATION RANGE 3

4 Why short duration? For bond managers, duration is an extremely useful tool in helping to manage portfolio risk. First, it allows the manager to compare the risk sensitivity and potential price volatility of bonds with differing yields, prices, coupons and maturities. Furthermore, depending on the manager s view on interest rates, they can adjust the average duration of the portfolio accordingly, moving shorter if a rate increase is expected (i.e. buying shorter dated bonds), or longer if a rate cut is expected. 4 SHORT DURATION RANGE

5 Potential benefits of investing in short duration bonds Ability to mitigate the impact of market volatility By the nature of a lower duration and spread duration, short duration investing offers lower volatility and drawdowns when compared to the wider, all maturities markets. This is predominantly because the price of bonds that are closer to maturity tends to be closer to par than longer duration bonds, and the discounted value of coupon payments is less sensitive to changes in interest rates. Lower sensitivity to rising interest rates Interest rates and bond prices usually move in opposite directions, therefore rising yields could have an adverse impact on bond prices. Due to their shorter maturities, short duration bonds can mitigate losses in periods of rising interest rates, as cash flows from maturing bonds can be reinvested at higher rates in the market. Increases portfolio liquidity Exhibiting a naturally attractive liquidity profile, due to regular cash flows from maturing bonds and coupon income, a short duration strategy is able to minimise turnover when implementing active strategies. Holding bonds until their maturity also implies lower transaction costs, which can improve returns over the long-term. Intermediate step into riskier asset classes Investors seeking higher yields may consider looking beyond domestic markets towards Asia, high yield and emerging markets, where short duration products can offer an attractive risk-return profile. What are the risks of investing in short duration bond funds? Risk of invested capital loss, as the funds are invested primarily in fixed income related assets Credit risk Counterparty risk For emerging market credit: risks linked to investments in emerging markets Use of derivatives and leverage risk Investors are advised to refer to the current prospectus and Key Investor Information Document (KIID) for a detailed description of risk considerations. Investors can find these documents on The mentioned information may be amended at any time without notice. Due to the simplification the information can be subjective. SHORT DURATION RANGE 5

6 AXA Investment Managers short duration bond strategy range Our short duration product range: AXA Investment Managers offers a range of short duration strategies which aim to meet your needs, whether you are looking for a higher yield or to combat inflation. Our short duration strategies generally invest in bonds with maturities of five years or less, or expected to be redeemed/called in five years or less, and seek to capture high current income with low overall volatility. INVESTMENT GRADE For investors looking to take the first step in the credit ladder. These strategies offer a yield enhancement to a cash alternative, while at the same time aiming to minimise overall volatility HIGH YIELD For investors seeking the opportunity to capture an attractive income and carry from the high yield asset class, while mitigating volatility Sterling Credit Short Duration 435m under management Launched in 2010 US Short Duration High Yield $20,231m under management Launched in 2001 US IG Credit Short Duration $145m under management Launched in 2013 Europe Short Duration High Yield 2,754m under management Launched in 2011 Euro IG Credit Short Duration 2,944m under management Launched in SHORT DURATION RANGE

7 EMERGING MARKETS AND ASIA INFLATION For investors looking to participate in diversifying asset classes through a volatility mitigation and high carry strategy, with the added feature of tactical local currency allocation For investors looking to mitigate the impact of both inflation and volatility on their portfolio, while participating in a diversifying asset class Emerging Markets Short Duration $1,109m under management Launched in 2012 Global Inflation Short Duration $103m under management Launched in March 2016 Asian Short Duration $20m under management Launched in March 2015 Source: AXA Investment Managers as at 30 June (1) Launched in 1999 as an aggregate fund, the Fund s strategy shifted to pure credit in The information in this document is provided for information purposes only. Performance results of the past are no indicator for any future returns or trends. SHORT DURATION RANGE 7

8 Short Duration Range INVESTMENT GRADE AXA World Funds Euro Credit Short Duration 1 The Fund aims to seek performance by investing in investment grade corporate and government debt securities in Euros over a medium-term Boutaina Deixonne Seeking potential return while mitigating market volatility Agile credit process that has been tested throughout the credit cycle Dedicated investment team with extensive experience AXA Sterling Credit Short Duration Bond Fund 3 AXA World Funds US Credit Short Duration IG 2 The Fund s objective is to seek performance by investing in investment grade corporate debt securities in USD over a medium-term Frank Olszewski Exposure to the improving US economy Focus on potential income generation and mitigation against capital loss Aim to generate potential return in a rising rate environment The Fund seeks to provide income combined with any capital growth. Nicolas Trindade An approach that has delivered consistent risk-adjusted performance Focus on mitigation against capital loss Focus on portfolio liquidity to lower transaction costs Information about AXA Investment Managers staff is only informative as of the date of this document. We do not guarantee continuous employment of the mentioned staff members. (1, 2, 3) Please note that this product may not be registered or available for public distribution in your jurisdiction. Please check the countries of registration with the asset manager, or on the web site com/fund-centre-for-cross-border-ranges, where a fund registration map is available 8 SHORT DURATION RANGE

9 HIGH YIELD AXA World Funds US Short Duration High Yield Bonds 4 The Fund looks to achieve primarily high attractive income and secondly capital growth by investing in US high yield debt securities over a medium-term Carl Whitbeck A total return approach Mitigating against volatility and capital loss A pioneer of the short duration high yield strategy AXA World Funds Europe Short Duration High Yield Bonds 5 The Fund seeks to achieve high attractive income and secondarily capital growth by investing primarily in high yield debt securities denominated in a European currency over a medium-term James Gledhill Capturing high yields in a low yield environment Mitigating against volatility and capital loss Seeking to avoid principle loss and a low default rate Information about AXA Investment Managers staff is only informative as of the date of this document. We do not guarantee continuous employment of the mentioned staff members. (4, 5) Please note that this product may not be registered or available for public distribution in your jurisdiction. Please check the countries of registration with the asset manager, or on the web site where a fund registration map is available SHORT DURATION RANGE 9

10 EMERGING MARKETS AND ASIA AXA World Funds Emerging Markets Short Duration Bonds 6 AXA World Funds Asian Short Duration Bonds 7 The Fund seeks performance by investing mainly in short duration debt securities issued in the emerging debt universe in USD over a mediumterm Sailesh Lad Access to a higher yielding asset class with a fraction of the market volatility A highly diversified strategy An experienced and integrated emerging markets expertise AXA World Funds Global Inflation Short Duration Bonds 8 INFLATION The Fund seeks performance by investing at least two thirds of its total assets in short duration debt securities issued in the Asian fixed income market over a medium-term Jim Veneau Historically, a compelling risk-return profile Seeking stable income generation while mitigating volatility An experienced, locally-based investment team environment The Fund seeks performance by investing mainly in short duration inflationlinked bonds issued in OECD countries, over a medium-term Jonathan Baltora Mitigate the impact of inflation and interest rate risk Size and scale in the global inflationlinked market Flexible allocation to inflation-linkers to maximise couponsyield strategy Information about AXA Investment Managers staff is only informative as of the date of this document. We do not guarantee continuous employment of the mentioned staff members. (6, 7, 8) Please note that this product may not be registered or available for public distribution in your jurisdiction. Please check the countries of registration with the asset manager, or on the web site com/fund-centre-for-cross-border-ranges, where a fund registration map is available 10 SHORT DURATION RANGE

11 Why AXA Investment Managers for short duration bonds? Broad product offering Whether investors are looking for a higher yield or to combat inflation, AXA Investment Managers offers a solution to different investment needs, including investment grade, high yield, Asia, emerging markets and inflation. A tried and tested approach A common investment philosophy seeks to capture potential income in short dated securities, while minimising default risk (a strict sell discipline is triggered by deteriorating fundamentals, insufficient liquidity or lack of financial transparency). A team approach to decision-making is aimed at promoting consistency of returns and close monitoring of risks. Experience AXA Investment Managers has over 15 years of experience in managing short duration across eight strategies, with 26 billion* globally under management for a diverse client base. *Source: AXA Investment Managers as at 30 June 2016 SHORT DURATION RANGE 11

12 Not for Retail distribution: This document is intended exclusively for Institutional/Qualified Investors and Wholesale/Professional Clients only, as defined by applicable local laws and regulation. Circulation must be restricted accordingly. This communication is for informational purposes only and does not constitute an offer to buy or sell any investments, products or services and should not be considered as a solicitation or as investment advice. The information contained herein is confidential and is intended solely for the person to which it has been delivered. It may not be reproduced or transmitted, in whole or in part, by any means, to third parties without the prior consent of AXA Investment Managers. Opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee forecasts made will come to pass. Whilst every care is taken, no representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein. Reliance upon information in this material is at the sole discretion of the recipient. Before making an investment, investors should read the relevant Prospectus and the Key Investor Information Document / scheme documents, which provide full product details including investment charges and risks. The information contained herein is not a substitute for those documents or for independent advice. Past performance is not a guide to future performance. The value of investments, and the income from them, can fall as well as rise and investors may not get back the amount originally invested. Exchange-rate fluctuations may also affect the value of their investment. Due to this and the initial charge that is usually made, an investment is not usually suitable as a short term holding. Investments in smaller companies offer the possibility of higher returns but may involve a higher degree of risk. This document has been issued by AXA Investment Managers UK Ltd (which is authorized and regulated by the FCA). In other jurisdictions, this document is issued by AXA Investment Managers SA s affiliates in those countries. Investors in those countries must note that the products or strategies discussed in this document may not be registered nor available in their countries. Please check the countries in which they are registered with the asset manager. AXA Investment Managers All rights reserved Design & Production: AXA IM Paris Photo credit: istock AXA Investment Managers: Issued by AXA Investment Managers UK Limited in England n o The registered office address is 7 Newgate Street, London EC1A 7NX Authorised and regulated by the Financial Conduct Authority and a member of the IMA