AXA Global Strategic Bond Fund - June 2022
- 15 July 2022 (5 min read)
Tune shifts from inflation story to weaker growth
- June was the toughest month yet in the worst H1 for fixed income markets in many decades
- Some support was found for government bonds after reaching a potential peak in yields
- Credit spreads widened sharply on the month, suggesting that markets are starting to focus more on a potential weaker environment for growth and possibly a recession
What’s happening?
June was the toughest month so far in what is turning out to be the worst year in fixed income for many decades. Once again, all assets had negative returns although, in June, it was credit sensitive assets that suffered most.
Government bonds found support at a high in yield of 3.5% for US 10-year treasuries, and rallied hard into month-end, but still ended up higher in yield than at end of May.
US high yield gave up all of May’s rally and started to price in expectations for a recession next year once the Federal Reserve has tightened financial conditions.
The mood during the month shifted from high inflation and rising interest rates to lower growth and threat of global recession, exacerbated by the threat that Russia could cut-off gas supplies to Europe for the winter ahead.
Portfolio positioning and performance
Defensive (35%): we continue to hold elevated duration of 5 years, as yields have moved up to the highest levels in many years. We added US government bonds to the portfolio given the uncertain outlook, increasing the overall Defensive risk bucket allocation to 35%.
Intermediate (34%): small reduction in investment grade exposure during the month as we sold some lower yielding BBB-rated bank debt in sterling. Whilst overall exposure was lower, we did buy some euro and sterling insurance credit in both primary and secondary markets, which look attractively priced for the rating.
Aggressive (31%): combined high yield and emerging markets exposure was down to 31% from a recent high of 38% in January, as fears of weaker growth driven by the tightening of financial conditions should drive credit spreads wider. During the month we took off the CDS hedge that had benefitted from the move wider in credit spreads.
Outlook
June proved to be another very difficult month for global fixed income as bond markets struggle to find support in the face of materially higher inflation and very hawkish central banks. On the positive side, central bank action is moving quickly in the direction of higher interest rates, which in turn is increasing their credibility in the fight with inflation.
Further green shoots emerged during June as the Treasury market rallied after 10-year bonds hit a yield of 3.5% and also finally provided some protection against risk asset losses towards the end of the month. The latter is an important development as, for most of this year, interest rate sensitive assets have sold off in line with credit sensitive assets – offering no place for global fixed income investors to hide.
Despite some encouraging signs, we do not see the end of the first half of 2022 as a significant catalyst for markets to turn and thus expect continued volatility. We do, however, think that focus should transition more to a weaker growth outlook, a possible peak in inflation and rising recessionary risks over coming months, which should benefit a better-quality fixed income portfolio.
During July, we will start to see companies update the market on their earnings outlook, which will doubtless add to the volatility of the year so far.
No assurance can be given that the AXA Global Strategic Bond Fund will be successful. Investors can lose some or all of their capital invested. The AXA Global Strategic Bond Fund is subject to risks including counterparty risk, derivatives risk, geopolitical risk, interest rate risk, securitised assets or CDO assets risk, emerging market risk, liquidity risk, credit risk, risks linked to investments in sovereign debt, high yield bonds risk and contingent convertible bonds (“CoCos”) risk. Further explanation of the risks associated with an investment in this fund can be found in the prospectus.
Unconstrained Fixed Income
This provides the potential flexibility to capitalise on opportunities across the fixed income spectrum as and when they arise.
Find out moreVisit our fund centre
The aim of the strategy is to generate income and any capital growth over the long term (being a period of five years or more).
View fundsDisclaimer
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 on the part of AXA Investment Managers a solicitation or investment, legal or tax advice. This material does not contain sufficient information to support an investment decision.
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.
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. Please note that the management company reserves the right, at any time, to no longer market the product(s) mentioned in this communication in the European Union country by notification to its authority of supervision in accordance with European passport rules. 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. In the event of dissatisfaction with the products or services, you have the right to make a complaint either with the marketer or directly with the management company (more information on our complaints policy is available in English https://www.axa-im.com/important-information/comments-and-complaints). You also have the right to take legal or extra-judicial action at any time if you reside in one of the countries of the European Union. The European online dispute resolution platform allows you to enter a complaint form (https://ec.europa.eu/consumers/odr/main/index.cfm?event=main.home.chooseLanguage) and informs you, depending on your jurisdiction, about your means of redress (https://ec.europa.eu/consumers/odr/main/?event=main.adr.show2).
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. References to league tables and awards are not an indicator of future performance or places in league tables or awards and should not be construed as an endorsement of any AXA IM company or their products or services. Please refer to the websites of the sponsors/issuers for information regarding the criteria on which the awards/ratings are based. 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: 22 Bishopsgate London EC2N 4BQ. In other jurisdictions, this document is issued by AXA Investment Managers SA’s affiliates in those countries.
Risk Warning
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.