Similar to the Australian fixed interest market, absolute returns from the global fixed interest market have been low over the past year. Global fixed interest markets exhibited extreme volatility in response to actual and potential policy decisions of central banks around the globe as they responded to the different growth dynamics of their underlying economies. In Japan, the central bank launched the largest quantitative easing program in history in an effort to finally revive the ailing Japanese economy. In the rest of the developed world, central banks generally faced a more positive outlook for their economies. Fixed interest investors paid particular attention to the US Federal Reserve’s hints mid-year that they would taper the quantitative easing program in place, citing an improved outlook for the US economy. This resulted in a large sell-off in the long end of the US curve and large outflows across a range of fixed interest asset classes. Given the high volatility created by central bank policy, many global fixed interest managers struggled to deliver outperformance over their respective benchmarks. For the first time in many years, some global fixed interest managers even delivered negative absolute annual returns. Those managers that performed the best were the ones more exposed to spread sectors and who were nimble in their allocations.
Winner: PIMCO
Zenith says: Despite having a more difficult period of performance in the past year, Zenith continues to regard PIMCO as one of the pre-eminent global fixed interest managers. Our high regard is based on the overall size, depth and experience of the investment team. Located in various regional offices around the globe, including Sydney, the team consists of close to 700 investment professionals, across various functions and fixed interest markets. The investment process continues to be guided by a centralised committee, referred to as the Global Investment Committee. This committee consists of 11 of the most experienced investors across the business, including co-CIOs Bill Gross and Mohamed El-Erian. This centralised investment decision-making process ensures consistency across mandates, while affording sufficient latitude to the nominated portfolio managers to influence investment outcomes. Zenith believes that the length of tenure of many of the investment professionals and consistent outperformance over time are testimony to a culture that rewards and encourages high performance.
Interview:
The biggest question facing bond managers is whether economic growth around the world is a by-product of central bank policy support or a genuine indication of underlying growth, according to Robert Mead, PIMCO’s head of portfolio management in Australia.
“The market flirted with the notion that there was legitimate underlying growth which would allow for the tapering of stimulus, but in September the Fed said there wasn’t sufficient growth to take the foot off the pedal,” he says.
“This issue has been the biggest driver of bond yields over the last six months and will continue to be for the next one to three years.”
PIMCO’s calls around quantitative easing in the United States and elsewhere have seen it generate positive returns across its global and diversified fixed interest portfolios, amidst some of the toughest conditions for bond managers.
The PIMCO EQT Wholesale Global Bond Fund returned 2.4 per cent for the year to September 30, 2013, and the PIMCO EQT Wholesale Diversified Fixed Interest Fund delivered 1.97 per cent.
Over the three-year period, the global bond fund returned 7.22 per cent, against the UBS Bank Bill Index return of 4.14 per cent.
“We have been particularly insightful in navigating all this stuff and part of that has been our ability to cut through all the noise in the market in order to focus on the fundamentals,” Mead says.
“The fundamentals are clear in our view. We’re managing money in a highly volatile environment, evidenced by the fact that as soon as there’s any increase in borrowing rates in the US, the housing market is immediately impacted.
“We will not allow inertia or momentum to drive our decisions over the long term.”
– Leng Yeow
Finalists:
– Bentham Asset Management
• Relatively small but specialist investment team.
• Leverages off a large and highly experienced team of high-yield/bank loan
specialists.
• Extensive track record in managing specialist strategies.
– Franklin Templeton Investments
• Large global investment team that is located in various countries around the globe.
• Investment process that draws off the most experienced investors within the
organisation, as well as regionally-based investors.
• Deep expertise in emerging and frontier markets.
