London 20 Savile Row London W1S 3PR UK Phone 44 20 7292.6920 Fax 44 20 7292.6932 New York 885 Third Avenue, 24th Floor New York, NY 10022, USA Phone 646 472 1800 Fax 646 472 1810 Singapore 6 Battery Road, #40-02A Six Battery Road, Singapore 049909 Phone 65.3158.3760 ESTABLISHED 1999 FIRMWIDE ASSETS OVER $42BN VALUE ORIENTATED Global Bonds Global Inflation Emerging Market Debt Alpha MARKET COMMENTARY Global government bonds ended the year positively with FTSE World Government Bond Index returning 2.4% over the quarter in US dollar hedged terms and 2.6% for 2018. The unhedged return was 1.8% for the quarter and -0.8% over 2018, due to the strength of the US dollar against most global currencies. The US Federal Reserve increased interest rates four times in 2018, with the final hike in December bringing the policy rate to 2.5%. These rate rises have caused investor concerns that interest rates may have risen too quickly and may harm future economic growth. However, so far there are few signs that the US economy is struggling, third quarter annual GDP data came in at 3%, unemployment is only 3.7% and inflation seems relatively contained at 2.2%. However, concerns over future economic growth resulted in a positive bond return of 2.5% over the quarter and 0.8% for 2018. The European Central Bank confirmed that it had ended the quantitative easing program that had been running since 2015. Economic growth data in the third quarter came out at 1.6% which was down from the previous quarter s 2.2%, yet the Bank remained confident enough to end the stimulus program. Inflation is 1.9% which is close to the ECB s target of 2.0% but core inflation remains lower at 1.0%. There was some conflict between Italy and the European Commission over the year, due to the size of their planned government budget deficit. This led to a selloff in Italian bonds and the 10-year yield reached a high of 3.7% in October before rallying as progress was made in talks between the two parties. Although the return from Italian bonds was -1.4% over 2018, the quarterly return was 3.4%. In the UK, Prime Minister Theresa May reached a deal with the European Union with her draft EU withdrawal agreement. However, it is increasingly questionable as to whether this deal will be able to pass through Parliament due to significant opposition. A vote had been scheduled in December, but this was delayed as it became clear that the government would not be able to win enough votes to pass the agreement. With the EU claiming that this deal will not be renegotiated, this increases the chance that the UK will withdraw without any agreement, a so called Hard Brexit scenario. This led to a rally in UK government bonds in the quarter, with Gilts returning 2.0% to leave the return for 2018 at 0.4%. Two new presidents took power in Latin America in the quarter. In Brazil, Jair Bolsonaro was elected with a right-wing populist message and although he does not have a working majority in the national congress the market reacted well to his election. It is hoped that he will start to reform the bloated social security system and drive through needed fiscal and economic reforms. The Brazilian bond market rallied significantly over the quarter delivering a total return of 8.1% bringing the 2018 return to a very healthy 12.6%. In Mexico, Andres Manuel Lopez Obrador formally took over as president following his election victory early in the year. His decision to abandon the building of the almost completed new airport for Mexico City raised some questions regarding policy stability. The market sold off by 1.5% over the quarter, however the 2018 return from Mexico remained positive at 2.8%. The US dollar performed well over the quarter and the year against most major currencies. A notable exception was Japanese yen which, due to signs of a tighter monetary policy environment in the year, appreciated by 2.7% against the dollar in 2018. Uncertainty surrounding the changing political leadership in Mexico saw the Mexican peso falling by 5% in the quarter but only depreciating by 0.7% to the dollar over the year. Continuing uncertainty over Brexit caused the British pound to lose ground to the US dollar by -2.3% and -5.9% over the quarter and 2018 respectively. The Australian dollar was the worst performing major currency over 2018, depreciating by 10.0% perhaps due to the central bank being relatively cautious on policy normalisation. 1. The FTSE World Government Bond Index 100% hedged in Australian dollars (AUD), formerly, The Citigroup World Government Bond Index 100% hedged in Australian dollars (AUD). 2. whose inception date was 19 September 2014. Please see further footnotes on following pages for more details. 3. Annualized returns since inception.
factors should be considered before any investment decision is made in relation to the Fund. The performance of the Fund is not guaranteed. Colchester and Equity Trustees Limited make no representation (express or implied) and shall have no liability in any way arising from the provision of this document for any loss or damage, direct or indirect, arising from the use of this document.
Gross Attribution of Total Returns Portfolio ² Benchmark ¹ Relative Return Monthly 2.02% 1.67% 0.34% Bonds 1.60% 1.67% -0.08% Currency 0.42% 0.00% 0.42% MONTHLY PERFORMANCE COMMENTARY The fund returned 2.02% over the month, outperforming the benchmark which returned 1.67%. Bond selection detracted - 0.08% from relative returns, while currency selection added 0.42%.The top three bond detractors from relative returns were the underweight positions in United States, United Kingdom and Europe. The top three positive currency contributors to relative returns were the long positions in Malaysia Ringgit, Mexican Peso and Swedish Krona. Quarterly 1.26% 2.31% -1.05% Bonds 1.73% 2.31% -0.58% Currency -0.47% 0.00% -0.47% Top 5 Bond Holdings 1 US Treasury 5.375% 15Feb2031 2 US Treasury 2% 31Aug 2021 3 Japanese Govt 0.1% 20Mar2020 4 US Treasury 1.5% 15 Aug 2026 5 US Treasury 2.375% 15 Aug2024 Top Active Currency Positions Portfolio Exposure relative to Benchmark Overweights % of Portfolio 1 Malaysia Ringgit 5.9% 2 British Pound 4.1% 3 Mexican Peso 3.6% Underweights 1 Australian Dollars -5.3% 2 New Zealand Dollars -5.2% 3 Hungarian Forint -3.9% QUARTERLY PERFORMANCE COMMENTARY The fund returned 1.26% over the quarter, underperforming the benchmark which returned 2.31%. Bond selection detracted -0.58% from relative returns and currency selection detracted -0.47%.The top three bond detractors from relative returns were the underweight positions in Europe and United States and the overweight position in Mexico. The top three currency detractors from relative returns were the short positions in New Zealand Dollars and Hungarian Forint and the long position in Colombian Peso. Portfolio Characteristics Portfolio ² Benchmark ¹ Duration 6.27 7.75 Yield 2.86 2.17 Yield to Maturity 2.38 1.51 Average Coupon 3.10 2.45 Average Credit Rating AA- AA factors should be considered before any investment decision is made in relation to the Fund. The performance of the Fund is not guaranteed. Colchester and Equity Trustees Limited make no representation (express or implied) and shall have no liability in any way arising from the provision of this document for any loss or damage, direct or indirect, arising from the use of this document.
MONTH END POSITIONING PERFORMANCE SINCE INCEPTION Portfolio 2014 2015 2016 2017 2018 Gross Returns 2.73% 1.38% 6.28% 3.98% 2.68% Benchmark¹ 3.99% 3.59% 5.02% 2.79% 2.51% Relative Gross -1.25% -2.21% 1.26% 1.18% 0.16% SI²³ 3.98% 4.19% -0.21% YTD Returns Q1:18 Q2:18 Q3:18 Oct Nov Dec Q4:18 YTD Gross Returns 1.47% -0.05% -0.01% -0.62% -0.12% 2.02% 1.26% 2.68% Benchmark¹ 0.64% 0.16% -0.59% -0.02% 0.64% 1.67% 2.31% 2.51% Relative Gross 0.83% -0.21% 0.57% -0.60% -0.77% 0.34% -1.05% 0.16% factors should be considered before any investment decision is made in relation to the Fund. The performance of the Fund is not guaranteed. Colchester and Equity Trustees Limited make no representation (express or implied) and shall have no liability in any way arising from the provision of this document for any loss or damage, direct or indirect, arising from the use of this document.
DISCLAIMERS Valuation and returns have been calculated in AUD as at month end. The WM-Reuters exchange rate used by the index provider in compiling their index is the predominant exchange rate used in valuing the Portfolio. Past performance is no guarantee of future performance and the value of any investment may fall as well as rise. This information is provided for indicative purposes only, and is supplied in good faith based on sources which we believe, but do not guarantee, to be accurate or complete as of the date of this document. Such information is current as of the date of this document and may be subject to change without notice. This document is not to be used or considered as an offer to sell or solicitation of an offer to buy any securities. Nothing in this document should be construed as providing any type of investment, tax or other advice. A full performance presentation in compliance with the Global Investment Performance Standards (GIPS ) is available upon request. Additional information regarding policies and procedures for calculating and reporting returns is also available on request. The portfolio's guidelines are set out in PDS of the fund. Investment management fees are described in PDS of the fund. The gross performance record presented above does not reflect the deduction of management and custody fees, which will reduce overall client returns. As an example of the impact of investment management fees on the net return to investors: the value of a $10 million investment at inception of 19 September 2014 on which the highest 60 basis points was payable, would be worth $11.818 million gross of investment management fees and $11.515 million net of fees as at the end of. The basis for calculating this example is to start with an investment amount, apply the monthly gross performance to the previous computed month end value, and deduct the highest fees payable (60.0 basis points) to compute the new month end value net of fees.investment management fees are described in the current prospectus. Colchester Global Investors (Singapore) Pte. Ltd. is registered in Singapore, Company Registration No: 201202440M. Registered Office: 6 Battery Road #40-02A, Six Battery Road, Singapore 049909. Colchester Global Investors (Singapore) Pte. Ltd. holds a capital markets services licence in fund management issued by the Monetary Authority of Singapore pursuant to the Securities and Futures Act, Chapter 289 of Singapore. Colchester Global Investors (Singapore) Pte. Ltd. is exempt from the requirement to hold an Australian financial services licence under the Corporations Act 2001 (Cwlth) in respect of financial services provided. Colchester Global Investors (Singapore) Pte. Ltd. is regulated by the Monetary Authority of Singapore under Singaporean laws which differ from Australian laws. Source: London Stock Exchange Group plc and its group undertakings (collectively, the "LSE Group"). LSE Group 2019. FTSE Russell is a trading name of certain of the LSE Group companies. "FTSE " is a trade mark of the relevant LSE Group companies and is used by any other LSE Group company under license. "TMX " is a trade mark of TSX, Inc. and used by the LSE Group under license. All rights in the FTSE Russell indexes or data vest in the relevant LSE Group company which owns the index or the data. Neither LSE Group nor its licensors accept any liability for any errors or omissions in the indexes or data and no party may rely on any indexes or data contained in this communication. No further distribution of data from the LSE Group is permitted without the relevant LSE Group company's express written consent. The LSE Group does not promote, sponsor or endorse the content of this communication. factors should be considered before any investment decision is made in relation to the Fund. The performance of the Fund is not guaranteed. Colchester and Equity Trustees Limited make no representation (express or implied) and shall have no liability in any way arising from the provision of this document for any loss or damage, direct or indirect, arising from the use of this document.