BLACKROCK FIXED INCOME GLOBAL OPPORTUNITIES FUND (AUST) FUND UPDATE
31 October 2017
Investment Performance (%) YTD
BlackRock Fixed Income Global Opportunities Fund (Aust) (Gross of Fees) (E Class)*
BlackRock Fixed Income Global Opportunities Fund (Aust) (Net of Fees) (D Class)^
Bloomberg AusBond Bank Bill IndexSM
Outperformance (Gross of Fees)
*Fund inception: 30/08/2014. ^Fund inception: 31/10/2014
Portfolio Management Team
Rick Rieder, Managing Director and Portfolio Manager 25 Years Investment Experience
Scott Thiel, Managing Director and Portfolio Manager 25 Years Investment Experience
Portfolio Performance The Fund returned 0.09% gross of investment management fees and expenses during October versus a return of 0.15% for the Bloomberg AusBond Bank Bill Index (the “Index”). Over the past year the Fund has returned 6.09% (gross) versus an Index return of 1.76%. Since inception (29 August 2014), the Fund has returned 4.45% (p.a. gross) versus a return of 2.14% (p.a. gross) for the Index. October’s positive performance was driven by our allocation to US investment grade and high yield credit, securitised products. Non-US credit allocations also added to performance as European and Asian credit spreads compressed in October. In global rates, our US TIPS positions added to returns, while our long duration exposure in the US detracted from returns as treasury yields rose. In European rates, our short duration positions in Italy, France and Germany detracted from returns as the dovish interpretation of the ECB’s announcement to reduce asset purchases in the coming years prompted European sovereign bonds to rally (yields to fall). Allocations to higher yielding EM local currency bonds, including Mexico, Turkey and Indonesia also detracted from returns.
Market Review Global fixed income saw a mixed performance in October. US treasury yields rose as the market began to price in the risk of a hawkish candidate for Federal Reserve chair and an increased probability of tax reform following Senate approval of the 2018 budget resolution. Meanwhile, in Europe, rates rallied (yields fell), as markets interpreted the ECB’s announcement of a reduced but extended asset purchase programme and comments from Draghi suggesting that an “ample degree of monetary stimulus remains necessary” while inflation remains below the ECB’s target of close to 2% as dovish. Credit indices across qualities (IG and HY) as well as regions (US, Europe and Asia) saw spreads tighten over the month, supported by the solid economic data globally and a rise in oil prices.
Bob Miller, Managing Director and Portfolio Manager 26 Years Investment Experience
At A Glance Investment objective: The BlackRock Fixed Income Global Opportunities Fund (Aust) is a flexible global multi-sector fixed income strategy that seeks to achieve a positive total return. While the fund is not tied to a benchmark, it is managed to a target return of 4-6% above the Bloomberg AusBond Bank Bill IndexSM, net of fees, over rolling 3-year periods. Management Fee: 0.70% p.a. (Class D Units) Buy/Sell Spread: N/A Fund Inception: August 2014
Visit BlackRock.com.au for further information, including: • Market Insights & Commentary • Fund Performance • Unit Prices
A number of factors such as the subdued M&A activity, more dovish than expected ECB and implications for a shift in the asset purchase as well as the overall low market volatility and continued grab for yield will continue to lend support to risk assets. However, recognizing that spreads have compressed significantly, we reduced the fund’s allocation to US investment grade credit and thus the overall spread duration over the month.
Unlike politics, fixed income markets continue to reflect signs of a stable, steady and an upward-moving global growth thesis, thus paving way towards gradual and predictable policy normalisation in the US, UK and Eurozone. In addition, low market volatility across global markets continue to prevail, providing a supportive backdrop against risk assets.
As the market priced in expectations for a December rate hike by the Fed, we used the underperformance in US treasuries (yields rose) to add to our long duration position. In our assessment, duration provides short-term shock-risk diversification and view US treasury bonds as cheap relative to many developed market peers. In EM, we continue to like the favourable growth dynamics of many economies and the attractive carry their bonds provide, further uplifted by the supportive global growth in developed economies. We believe that improved EM growth is a resumption of structural tailwinds after a few years of deceleration and deleveraging and see the recent underperformance as an opportunity to increase risk. We retain our core thesis that the global economy remains in a regime of steady, synchronised and durable global growth and as such maintain an overall bias towards income generating assets. Active Currency Exposure (%) 2.0 1.0 0.0 -1.0 -2.0 -3.0
In the US, we think the Fed has met expectations in communicating its policy goals and the path in which it will take and as such, markets have not been surprised by its more recent announcements having already priced much of this in. We believe the Fed will raise its policy rate by 25 basis points at its December meeting and two to three times next year, providing inflation and growth does not take a dramatic turn. In addition, we think the transition from Chair Yellen to newly appointed Chair Powell will be smooth, causing minimal disruption to an economy that continues to experience strong growth. In Europe, the announcement that principals of maturing securities will be reinvested for “as long as necessary” and the clear distinction between the reinvestment period and the horizon of net asset purchases is notable, in our view, as it relates to the sequencing of ECB policy. Specifically, rates will increase after net asset purchases end, not after reinvestment ends. In the UK, as expected, the Bank of England delivered a 25 basis point rise in interest rates, effectively removing the emergency cut implemented last year. We think the path is moving towards an increasing likelihood of a soft Brexit and in our view the Bank of England is poised to raise rates in 2018 at least twice amidst strong economic and growth data. In Japan, we expect a continuation of current fiscal and monetary policy stances and retain our position for a steepening of the long end of the Japanese Government Bond curve. In this environment, flexibility is key to capturing alpha where it exists across the globe and a strong risk framework ensures that the fund takes risk in a deliberate and measured fashion.
-4.0 -5.0 -6.0 -7.0 -8.0 British Pound
Brazilian Indonesian Russian Real Rupiah Ruble
Swiss United States Franc Dollar
Strategy Risk Decomposition (bps)
Duration Contribution by Country (Years)
US Rates 84.74
Swap Spreads 7.16
Non-US Rates 31.06
Agency MBS 1.16
EM 11.29 Non-Agency 9.27
Source: BlackRock Solutions (‘BRS’) & Bloomberg Ex-ante risk based on the BRS Portfolio Risk model; Pie charts show relative standalone risks of exposures at month end.
Key Rate Yield Curve Positioning (Years) 1.5
United States 1.0
-1.0 0 to 2
3 to 5
7 to 10
About the Fund The BlackRock Fixed Income Global Opportunities Fund (Aust) is a flexible, core bond alternative. It could appeal to investors looking to: •
enhance return potential from their fixed income allocation without taking on too much risk;
diversify their bond portfolios away from traditional fixed income assets; and
• counter the risk to performance that a rising interest rate environment presents over the medium term. The BlackRock Fixed Income Global Opportunities Fund (Aust) does not focus on just one area of global bond markets. It is a result of collaboration between portfolio managers within the BlackRock group and over 150 investment specialists globally who cover corporate, sovereign, municipal and structured bonds. Fund Details Blackrock Fixed Income Global Opportunities Fund (Aust)
APIR Buy/Sell Spread Management Fee (Class D Units)* Strategy AUM Fund AUM Liquidity Minimum Initial Investment (Class D Units)^
BLK0003AU N/A 0.70% p.a. $10,257 mil $129 mil Daily $50,000
* The current default management fee for Class E units in the BlackRock Fixed Income Global Opportunities Fund (Aust) is 0.70% p.a. Pursuant to ASIC Class Order relief, BlackRock will individually negotiate fees with “wholesale clients” or “sophisticated” or “professional” investors (as defined in the Corporations Act). ^ The minimum initial investment for Class E Units in the BlackRock Fixed Income Global Opportunities Fund (Aust) is $500,000.
Issued by BlackRock Investment Management (Australia) Limited ABN 13 006 165 975, AFS Licence 230523 (BlackRock Australia). BlackRock Australia is the responsible entity of the BlackRock Fixed Income Global Opportunities Fund (Aust) ARSN 601 048 659 (Fund). A Product Document Statement for Class D Units in the Fund is available from BlackRock Australia. A Disclosure Document for Class E Units in the Fund is available from BlackRock Australia. You should consider the Product Disclosure Statement or Disclosure Document in deciding whether to acquire, or to continue to hold, interests in the Fund. Please call us on 1300 366 100 or visit our website www.blackrock.com.au to obtain a copy of the Product Disclosure Statement or Disclosure Document. BlackRock Australia, its officers, employees and agents believe this information is correct at the time of compilation, but no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors or omissions (including responsibility to any person by reason of negligence) is accepted by BlackRock Australia, its officers, employees or agents, or any entity in the BlackRock Group. This is general information only and is not intended to represent general or specific investment or professional advice. The information does not take into account an individual’s financial circumstances. An assessment should be made as to whether the information is appropriate in individual circumstances and consideration should be given to talking to a financial or other professional adviser before making an investment decision. No guarantee as to the capital value of investments in the Fund nor future returns is made by BlackRock Australia or any entity in the BlackRock Group. Past performance is not a reliable indicator of future performance. No index provider makes any representation regarding the advisability of investing in the Fund.