Making the case for short-dated bonds
- 25 October 2022 (10 min read)
This year, the sterling credit market has experienced its largest ever drawdown following a large rise in gilt yields and much wider credit spreads.
The AXA Sterling Credit Short Duration Bond Fund substantially outperformed both the sterling credit universe and peers over this period thanks to its structural defensive positioning and active management.
In this short video fund manager Nicolas Trindade explains why he believes short-dated sterling corporate bonds are now attractive, with the highest yield on offer since 2009 and a powerful ‘pull-to-par’ effect likely to add to performance as bonds priced at historic lows (in the low 90s) mature at 100 over the next few years.
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The aim of the Fund is to provide income combined with any capital growth.
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Short Duration Bonds
Short duration bonds can offer a smart alternative to government bonds or cash in the bank.
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No assurance can be given that our investment strategies will be successful. Investors can lose some or all of their capital invested.
Additional risks associated with this fund include:
- Counterparty Risk: failure by any counterparty to a transaction (e.g. derivatives) with the Fund to meet its obligations may adversely affect the value of the Fund. The Fund may receive assets from the counterparty to protect against any such adverse effect but there is a risk that the value of such assets at the time of the failure would be insufficient to cover the loss to the Fund.
- Derivatives: derivatives can be more volatile than the underlying asset and may result in greater fluctuations to the Fund's value. In the case of derivatives not traded on an exchange they may be subject to additional counterparty and liquidity risk.
- Interest Rate Risk: fluctuations in interest rates will change the value of bonds, impacting the value of the Fund. Generally, when interest rates rise, the value of the bonds fall and vice versa. The valuation of bonds will also change according to market perceptions of future movements in interest rates.
- Liquidity Risk: some investments may trade infrequently and in small volumes. As a result the Fund manager may not be able to sell at a preferred time or volume or at a price close to the last quoted valuation. The Fund manager may be forced to sell a number of such investments as a result of a large redemption of shares in the Fund. Depending on market conditions, this could lead to a significant drop in the Fund's value and in extreme circumstances lead the Fund to be unable to meet its redemptions.
- Credit Risk: the risk that an issuer of bonds will default on its obligations to pay income or repay capital, resulting in a decrease in Fund value. The value of a bond (and, subsequently, the Fund) is also affected by changes in market perceptions of the risk of future default. Investment grade issuers are regarded as less likely to default than issuers of high yield bonds.
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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 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.
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