Should investors have picked Aussie or global bonds?
There has been minimal discrepancy between the performance of Australian and international bond funds as countries around the world adjust to a low, or even negative, interest rate environment.
According to FE Analytics, within the Australian Core Strategies universe, there were 81 funds with a one-year track record in the Australian bond sector, and 79 in the international sector.
The average global bond returned 1.6% while the average Australian bond returned 1.5%.
The best-performing Australian bond fund was Elstree Enhanced Income which returned 4.78% over one year to 31 August, 2020, followed by Janus Henderson Tactical Income which returned 3.4%.
Jay Sivapalan, head of Australian fixed interest at Janus Henderson, said: “Asset allocation including a greater exposure to lower duration floating rate assets relative to longer duration fixed interest helped preserve capital from rising bond yields.
“Allocations to spread sectors including exposure to semi-government bonds, investment grade credit added value. Meanwhile, a greater than average allocation to opportunistic higher yielding credit boosted returns for investors.
“This smaller but powerful allocation included some underlying exposure to major bank subordinated debt, impacted but otherwise strong and resilient Australian corporate debt, global high yield and some secured loans.”
In the international bond sector, there were only three funds which outperformed this.
These were the Legg Mason Brandywine Global Income Optimiser which returned 9.8%, Lazard Emerging Market Total Return Debt which returned 8.8% and 5% returns for the Ardea Diversified Bond fund.
In its latest market update, the Legg Mason Brandywine Global Income Optimiser fund said it was heavily tilted to investment grade credit and had select exposure to high yield.
“Positions in BB-rated and B-rated credit were the greatest source of relative returns during the month. Exposure to investment-grade corporates also added significant value in July. At a sector level, the fund’s exposure to technology, communications and consumer non-cyclicals were accretive to performance, as these industries have generally benefited from the idiosyncrasies of living and doing business remotely during the COVID-19 era,” it said.
However, the sector also had a fund which performed significantly worse than the worst-performing Australian bond one which skewed its sector average. This was the SPW Global Income fund which lost 19.8% over one year to 31 August.
The worst-performing Australian bond fund was GAM FCM ILS Yield which lost 3.8% and, overall, there were only four funds in the sector which reported losses compared to 19 in the international one.
As well as the GAM fund, the other three negative Australian bond funds were Yarra Enhanced Income Direct, Zurich Investment Plan Government Securities and Zurich Investment Plan Fixed Interest.
AUTHOR
Laura Dew
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