Euroland Bond How to generate excess returns in a challenging interest rate environment

Transcription

1 Euroland Bond How to generate excess returns in a challenging interest rate environment Standish is a brand of BNY Mellon Asset Management North America Corporation Thant Han, Director and Senior Portfolio Manager on the Global Multi-sector Fixed Income Team at Standish Geld Magazin Institutional Investor Congress in Vienna, 19 September 218 For Professional Clients only. Any views and opinions are those of the investment manager, unless otherwise noted.

2 Biography Thant Han Thant is a director and senior portfolio manager on the global multi-sector investment team at Standish Mellon Asset Management (UK) Limited and is an associated person of the firm. He is responsible for managing multi-sector global bond portfolios, short duration single sector portfolios and also focuses on global inflationlinked bond strategies. Prior to joining the firm, Thant was fixed income fund manager and associate director at Blackfriars Asset Management, formerly WestLB Mellon Asset Management (UK). Before that, he spent his time as an assistant portfolio manager and analyst for global fixed income at Cazenove Fund Management. Thant holds a BSc in Economics and Statistics from University College London and has 2 years of investment experience. 2

3 BNY Mellon Investment Management Delivering investment excellence through our multi-boutique model Our world-class specialist investment managers: Total AUM: US$1.8 trillion 1 Global sub-investment grade debt AUM: US$31.7bn Brazilian multi-strategy, long/short, long-only and fixed income AUM: US$2.5bn Money markets AUM: US$213.8bn Fund of hedge funds / non-proprietary manager of managers AUM: US$3.9bn 2 LDI, fixed income, absolute return, specialist equity AUM: US$794.1bn Active equity and bonds, multi-asset, real return and income AUM: US$67.1bn Multi-strategy private equity investing; direct investment and fund-of-funds AUM: US$13.2bn Active global equity AUM: US$66.3bn Fundamental active fixed income and credit AUM: US$137.bn Fundamentals-based systematic investing; index and multi-asset & multi-factor solutions AUM: US$363.4bn Research-driven global active equity, across styles, market capitalisations and regions AUM: US$49.4bn Investment Managers are appointed by BNY Mellon Investment Management EMEA Limited (BNYMIM EMEA) or affiliated fund operating companies to undertake portfolio management activities in relation to contracts for products and services entered into by clients with BNYMIM EMEA or the BNY Mellon funds. Total AUM has been provided by BNY Mellon Finance as at 3 June 218 and includes the asset managers outlined in this file, with the exception of Siguler Guff, as well as The Dreyfus Corporation, BNY Mellon Wealth Management and external data. Individual AUMs provided by respective investment managers as at 3 June 218, unless otherwise stated. 1. A division of The Dreyfus Corporation. 2. Minority Owned. 3. Standish, Mellon Capital and The Boston Company are brands of BNY Mellon Asset Management North America Corporation. On 31 January 218, The Boston Company Asset Management, LLC (TBCAM) and Standish Mellon Asset Management Company LLC (Standish) merged into Mellon Capital Management Corporation (Mellon Capital), which immediately changed its name to BNY Mellon Asset Management North America Corporation. 3

4 Firm overview ABOUT US STRATEGIES $549.8B Assets Under Management Over 5 Employees 1 Active Fixed Income $137.B Index, Multi-Asset & Multi- Factor $363.4B Active Equity $49.4B Clients in 45 Countries & Territories Headquartered in Boston With offices in Pittsburgh, San Francisco, London 2, Singapore 2 and Hong Kong 2 Our investment strategies span a wide range of active and passive investment disciplines across the style, geography and capitalization spectrum. Our strategies are designed to meet growing client demand for more diversified, sophisticated investment solutions from a single provider. We proudly put clients needs first. To do so, we believe in collaboration, consistent application of our investment process and innovation. Standish, Mellon Capital and The Boston Company are brands of BNY Mellon Asset Management North America Corporation. Data as at 3 June Employee total includes employees of affiliated entities acting as dual officers and/or associated persons of BNY Mellon Asset Management North America. 2 Location of affiliated entities providing services. No investment strategy or risk management technique can guarantee returns or eliminate risk in any market environment.

5 1yr spreads vs Germany (bps) bps Euro corporate and sovereign spreads look rich Eurozone peripheral and semi-core spreads 16 European IG and sub-ig CDS indices bps France Spain Portugal Italy Markit itraxx Europe - Crossover (RHS) Markit itraxx Europe (LHS) Source: Bloomberg as at 14 September 218

6 Jun 8 Sep 8 Dec 8 Mar 9 Jun 9 Sep 9 Dec 9 Mar 1 Jun 1 Sep 1 Dec 1 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12 Dec 12 Mar 13 Jun 13 Sep 13 Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15 Mar 16 Jun 16 Sep 16 Dec 16 Mar 17 Jun 17 Sep 17 Dec 17 Mar 18 Jun 18 5s3s bond spread (bps) Better opportunities looking at the slope of the yield curve Eurozone peripheral yield curves s3s bond spread (bps) -1-1 Spain (LHS) Italy (LHS) Portugal (RHS) Source: Bloomberg as at 13 September 218

7 bps Bond yields have risen but not everywhere in the Eurozone Long-dated bonds have declined Change in yields YTD to 13 September 218 Maturity Country 3YR 1YR 5YR 2YR Spain Portugal Netherlands Germany France Finland Spain Portugal Netherlands Germany France Finland Austria Austria Slovenia Slovenia Ireland Belgium Italy Ireland Belgium Italy YR 1YR 5YR 2YR Tightening Widening 2>3 1>2 >1 Less than zero Source: Bloomberg as at 13 September 218

8 bps Curve flatteners are the winners The slope of the curve Change in yield curve spread YTD to 13 September 218 Maturity Country 1s3s 5s3s 2s3s 1-1 Spain Portugal Netherlands Germany Spain Portugal Netherlands Germany France France Finland Finland Austria Austria Slovenia Slovenia Ireland Belgium Italy Ireland Belgium Italy Tightening >3 2>3 Bond maturities 1>2 >1 Widening Less than zero Source: Bloomberg as at 13 September 218

9 bps Yield curve has already flattened a lot elsewhere Eurozone curve still has a long way to go 5s3s bonds spread Germany US UK Source: Bloomberg as at 11 September 218

10 This Spring, advanced economies appeared to be growing synchronously Real GDP growth across 39 advance economies Percent of sample Percent Note: Requires valid observations in both current and previous year and about the same is defined as +/-.5% relative to prior year. Source: International Monetary Fund, World Economic Outlook (April 218)

11 Euro area data disappointed expectations Economic surprises Index, Neutral = Source: Citigroup Markets, accessed via Bloomberg July 25, 218

12 Global economic outlook Real GDP growth (%) CPI inflation (%) US Euro area Japan UK China World Source: Standish, part of BNY Mellon Asset Management North America, June 218

13 The Entire Investment Map August 218 Economic Landscape Fixed-Income Valuation Investment Themes The trade dispute will probably get worse before it gets better, but the hit to economic activity is likely to be modest. In the US, accommodative financial conditions and fiscal impetus supports above-trend economic growth, exacerbating excess demand and putting upward pressure on costs. Most other advanced economies should grow above trend, as long as neither internal nor external politics derail the process. Robust growth in China supports emerging market economies and commodity prices, although there are multiple risk events. As inflation overshoots the Fed s goal, modestly more tightening is in store than currently built into markets. With the Fed in the lead, central banks in developed markets are moving, albeit slowly, to renormalize monetary policy; They thus far remain willing to lean against market instability. Above-trend economic growth makes developed market sovereign yields expensive. Break-evens offer value and provide inexpensive protection to upside surprises to inflation. The dollar appears expensive against other developed and emerging market currencies. For institutional investors, municipal assets are fairly valued, with the exception of the five-year maturity, which looks rich. With fundamentals remaining strong, investment-grade corporate spreads are fair. High-yield spreads are somewhat expensive. Market and political uncertainties create opportunities in emerging markets local currency and dollar debt. Interest rate volatility remains low. The flattening of the Treasury yield curve provides attractive carry at the short end that will offset capital losses some as rates rise. Valuations of securitized products generally appear fair to rich. Be biased toward short duration positions in core developed market sovereign securities. Maintain short dollar exposure, where appropriate through option strategies given increased probability of tail risks. Maintain modest exposure to break-evens. Remain overweight investment-grade hard-currency EM debt. Maintain modest credit exposure but look to gradually step up the quality of the holdings. Rotate from short-duration municipal securities to longer duration ones or taxable bonds, where appropriate. Maintain modest underweight in MBS and emphasize ABS versus CMBS. Continue option strategies with minimal cost to keep portfolios sufficiently convex. Look for opportunities to reduce risk selectively. Source: BNY Mellon Asset Management North America as at 8 August 218

14 BNY Mellon Euroland Bond Fund Risk disclosures Past performance is not a guide to future performance. The value of investments can fall. Investors may not get back the amount invested. Income from investments may vary and is not guaranteed. Objective/Performance Risk: There is no guarantee that the Fund will achieve its objectives. Geographic Concentration Risk: The Fund primarily invests in a single market which may have a significant impact on the value of the Fund. Derivatives Risk: Derivatives are highly sensitive to changes in the value of the asset from which their value is derived. A small movement in the value of the underlying asset can cause a large movement in the value of the derivative. This can increase the sizes of losses and gains, causing the value of your investment to fluctuate. When using derivatives, the Fund can lose significantly more than the amount it has invested in derivatives. Changes in Interest Rates & Inflation Risk: Investments in bonds/money market securities are affected by interest rates and inflation trends which may negatively affect the value of the Fund. Credit Ratings and Unrated Securities Risk: Bonds with a low credit rating or unrated bonds have a greater risk of default. These investments may negatively affect the value of the Fund. Credit Risk: The issuer of a security held by the Fund may not pay income or repay capital to the Fund when due. Emerging Markets Risk: Emerging Markets have additional risks due to less-developed market practices. Share Class Hedging Risk: Hedged share classes use techniques to try to reduce the effects of changes in the exchange rate between the share class currency and the base currency of the Fund. These techniques may not eliminate all currency risk. Share Class Currency Risk: Share classes may be denominated in a different currency from the base currency of the Fund. Changes in the exchange rate between the share class currency and the base currency may affect the value of your investment. Counterparty Risk: The insolvency of any institutions providing services such as custody of assets or acting as a counterparty to derivatives or other contractual arrangements, may expose the Fund to financial loss. 14

15 Warning For Professional Clients only. This is a financial promotion and is not investment advice. For a full list of risks applicable to this fund, please refer to the Prospectus or other offering documents. Before subscribing, investors should read the most recent Prospectus, financial reports and KIID for each fund in which they want to invest. Go to Investments should not be regarded as short-term and should normally be held for at least five years. BNY Mellon is the corporate brand of The Bank of New York Mellon Corporation and its subsidiaries. Portfolio holdings are subject to change, for information only and are not investment recommendations. The Fund is a sub-fund of BNY Mellon Global Funds, plc, an open-ended investment company with variable capital (ICVC), with segregated liability between sub-funds. Incorporated with limited liability under the laws of Ireland and authorised by the Central Bank of Ireland as a UCITS Fund. The Management Company is BNY Mellon Global Management Limited (BNY MGM), approved and regulated by the Central Bank of Ireland. Registered address: 33 Sir John Rogerson s Quay, Dublin 2, Ireland. In Austria, the current Prospectus and the Key Investor Information Document are available free of charge from Raiffeisen Zentralbank Österreich Aktiengesellschaft, Am Stadtpark 9, A-13 Vienna. AUM for EACM Advisors and BNY Mellon Asset Management North America Corporation includes assets managed by those individual firms officers as associated persons, dual officers or employees of The Dreyfus Corporation. In addition, AUM / OUM for the following firms may include assets managed by them as non-discretionary investment manager for, or by the individual firms officers as dual officers or employees of, The Bank of New York Mellon: The Dreyfus Corporation and its BNY Mellon Cash Investment Strategies division, Newton Capital Management Limited (part of The Newton Group) and BNY Mellon Asset Management North America Corporation. AUM includes BNY Mellon Wealth Management and external data. AUM outlined for Newton represents the aggregate AUM of the following affiliated companies: Newton Investment Management Limited and Newton Capital Management Limited and may include assets managed by Newton s officers as dual officers or employees of The Bank of New York Mellon. Insight investment's assets under management are represented by the value of cash securities and other economic exposure managed for clients. The Bank of New York Mellon Corporation holds 2% minority interest in Siguler Guff & Company LLC and certain related entities. BNY Mellon owns a majority of BNY Mellon Asset Management North America Corporation and the remainder is owned by employees of the firm. BNY Mellon Cash Investment Strategies is a division of The Dreyfus Corporation. In Austria this document is issued by BNY Mellon Investment Management EMEA Limited, BNY Mellon Centre, 16 Queen Victoria Street, London EC4V 4LA. Registered in England No Authorised and regulated by the Financial Conduct Authority. PRE1893. Exp. 8 November