Fixed income

Global Short Duration strategy Summer rally continues

  • Credit spreads further tightened thanks to a sustained level of monetary and fiscal support
  • Europe is starting to see a second wave of coronavirus
  • We kept the risk profile stable

What’s happening?

Despite persistent worries about spikes in infections across the world, credit spreads continued to tighten in August thanks to a sustained level of monetary and fiscal support from central banks and governments worldwide, China and the US re-committing to their ‘Phase One’ trade agreement, and encouraging news about a coronavirus treatment.

In a significant change in monetary policy, the US Federal Reserve (Fed) announced plans to shift to ‘average inflation targeting’ in an attempt to increase inflation expectations. This also implied that interest rates would likely remain at a low level for longer.

Following the continued risk-on environment and the Fed’s new inflation policy, US treasury, German bund
and UK gilt yields rose in August.

Portfolio positioning and performance

Sovereign: Despite the recent rally, we remained invested in short-dated US treasury inflation-linked bonds due to still attractive valuations.

Investment Grade: We kept our exposure to investment grade constant during the month. We were still active in secondary markets, buying for example US food company Bunge in US dollars.

High Yield and Emerging Markets: We also kept our exposure to high yield and emerging markets constant. We were still active in primary markets, participating in several emerging market new issues. Due to the gradual re-risking undertaken since late March, we now have a 34% allocation to high yield and emerging markets - upfrom 19% at the end of February. As such, we remain slightly overweight versus our long-term neutral allocation of 30%.

Outlook

Despite all advanced economies forecast to be in recession this year, we have now experienced the shortest bear market ever in credit markets due to the unprecedented monetary, fiscal and regulatory support.

We plan to keep on adding to attractive opportunities in European high yield (lagged the rally) and emerging markets (benefit from the Chinese recovery, a weaker dollar and lower for longer US yields) through primary markets as policy support still provides a strong backstop for credit markets despite more expensive valuations.

No assurance can be given that the Global Short Duration strategy will be successful. Investors can lose some or all of their capital invested. The Global Short Duration strategy is subject to risks including credit risk, liquidity risk and interest rate risk and counterparty risk. The strategy is also subject to derivatives and leverage, emerging markets and global investment risks.

Not for Retail distribution: This document is intended exclusively for Professional, Institutional, Qualified or Wholesale Clients / Investors only, as defined by applicable local laws and regulation. Circulation must be restricted accordingly.

This promotional communication does not constitute investment research or financial analysis relating to transactions in financial instruments as per MIF Directive (2014/65/EU), nor does it constitute on the part of AXA Investment Managers or its affiliated companies an offer to buy or sell any investments, products or services, and should not be considered as solicitation or investment, legal or tax advice, a recommendation for an investment strategy or a personalized recommendation to buy or sell securities.
Due to its simplification, this document is partial and opinions, estimates and forecasts herein are subjective and subject to change without notice. There is no guarantee that forecasts made will come to pass. Data, figures, declarations, analysis, predictions and other information in this document is provided based on our state of knowledge at the time of creation of this document. 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. This material does not contain sufficient information to support an investment decision.
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 professional external advice.
The products or strategies discussed in this document may not be registered nor available in your jurisdiction. Please check the countries of registration with the asset manager, or on the web site https://www.axa-im.com/en/registration-map, where a fund registration map is available. In particular units of the funds may not be offered, sold or delivered to U.S. Persons within the meaning of Regulation S of the U.S. Securities Act of 1933. The tax treatment relating to the holding, acquisition or disposal of shares or units in the fund depends on each investor’s tax status or treatment and may be subject to change. Any potential investor is strongly encouraged to seek advice from its own tax advisors.
Past performance is not a guide to current or future performance, and any performance or return data displayed does not take into account commissions and costs incurred when issuing or redeeming units. 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.
Issued in the UK by AXA Investment Managers UK Limited, which is authorised and regulated by the Financial Conduct Authority in the UK. Registered in England and Wales No: 01431068. Registered Office: 7 Newgate Street, London EC1A 7NX. In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries.