King's Chamber
Selecting the right tools
To achieve a return profile uncorrelated to other parts of a balanced portfolio such as equities, a flexible bond strategy should also diversify where it is taking risk within the global opportunity set. Many flexible bond strategies tend to only focus on credit markets.
AllianzGI’s Macro Unconstrained team apply a top down macro approach in managing Allianz Strategic Bond, focusing on global economics and developing views across the global fixed income universe, from duration and yield curve, through the credit rating spectrum and into other areas of fixed income markets often underappreciated by markets, such as inflation and currencies.
4 global sources of alpha
Footnote: This is for illustrative purposes only, not a reliable indicator of future results. The Allianz Strategic Bond strategy has been launched on 4th November 2019 as sub-fund of the Luxembourg domiciled Allianz Global Investors Fund SICAV (AGIF). Allianz Strategic Bond will be managed according to the same strategy and investment objectives of the onshore UK OEIC Allianz Strategic Bond Fund; this does not imply that Allianz Strategic Bond will enjoy a similar performance. Source: Allianz Global Investors, June 2020.
Within the rates strategy, team take views on duration and yield curves across the globe. While we don’t want to have a structural long credit/spread bias, that doesn’t mean we cannot look for opportunities within credit when they present themselves. Within credit we look for opportunities across the rating spectrum, including Investment Grade & High Yield corporate bonds but also peripheral Eurozone government bonds and hard currency emerging market debt. We also take views on areas we think are often underappreciated by global bond investors: inflation & currencies. We can take views on market inflation expectations, using inflation linked bonds or inflation swaps, and while the neutral position for the portfolio is to be 100% hedged to base currency, we take active FX positions as well as using FX often to hedge portfolio tail risks.
We have plenty of flexibility to reposition the portfolio into different areas of fixed income markets as our macro outlook develops. More importantly, over the last 4 years since we launched this strategy, we have been fully utilising this flexibility to express the strength of our convictions.
A discretionary approach for a flexible strategy
Central to the success of the strategy is the flexibility to position the portfolio to an evolving macroeconomic environment, in order to generate outperformance regardless of the market backdrop. Portfolio construction begins with generating macro views, and then deciding how best to implement the views using the full global macro toolkit of rates, credit/spread, inflation and currencies. We aim to take advantage of market pricing that diverges from our macro outlook across the four alpha sources. While at its core this is a bond fund, when constructing the portfolio, we often make use of derivatives in order to tailor our desired risk exposures or hedge undesired risks within the portfolio. Alongside the broad range of traditional fixed income instruments available to us, other typical instruments used include futures, forwards, interest rate swaps, inflation swaps, credit default swaps and options. When selecting which instruments to utilise for gaining exposures within the portfolio, we also assess liquidity characteristics. Underlying liquidity is a crucial factor for the strategy, providing us with the flexibility to reposition exposures as our macro convictions change.
A developing macro outlook
As the macro outlook evolves, so does the portfolio. To help investors stay on top of the team’s latest outlook, the portfolio managers post their latest views and highlight interesting developments within global bond markets on their blog, which can be found at www.bondissues.co.uk.
1. Data as at 29th August 2020. A ranking, a rating or an award provides no indicator of future performance and is not constant over time.
Investing involves risk. The value of an investment and the income from it may fall as well as rise and investors might not get back the full amount invested. Investing in fixed income instruments may expose investors to various risks, including but not limited to creditworthiness, interest rate, liquidity and restricted flexibility risks. Changes to the economic environment and market conditions may affect these risks, resulting in an adverse effect to the value of the investment. During periods of rising nominal interest rates, the values of fixed income instruments (including short positions with respect to fixed income instruments) are generally expected to decline. Conversely, during periods of declining interest rates, the values of these instruments are generally expected to rise. Liquidity risk may possibly delay or prevent account withdrawals or redemptions. Allianz Strategic Bond is a sub-fund of Allianz Global Investors Fund SICAV, an open-ended investment company with variable share capital organised under the laws of Luxembourg. The value of the units/shares which belong to the Unit/Share Classes of the Sub-Fund that are not denominated in the base currency may be subject to an increased volatility. The volatility of other Unit/Share Classes may be different and possibly higher. Past performance is not a reliable indicator of future results.
If the currency in which the past performance is displayed differs from the currency of the country in which the investor resides, then the investor should be aware that due to the exchange rate fluctuations the performance shown may be higher or lower if converted into the investor’s local currency. This is for information only and not to be construed as a solicitation or an invitation to make an offer, to conclude a contract, or to buy or sell any securities. The products or securities described herein may not be available for sale in all jurisdictions or to certain categories of investors. This is for distribution only as permitted by applicable law and in particular not available to residents and/or nationals of the USA. The investment opportunities described herein do not take into account the specific investment objectives, financial situation, knowledge, experience or specific needs of any particular person and are not guaranteed. The views and opinions expressed herein, which are subject to change without notice, are those of the issuer companies at the time of publication. The data used is derived from various sources, and assumed to be correct and reliable at the time of publication.
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For professional investors in Europe (excluding Switzerland)
For a free copy of the sales prospectus, incorporation documents, daily fund prices, key investor information, latest annual and semi-annual financial reports, contact the management company Allianz Global Investors GmbH in the fund’s country of domicile, Luxembourg, or the issuer at the address indicated below or www.allianzgiregulatory.eu. Austrian investors may also contact the Austrian information agent Allianz Investmentbank AG, Hietzinger Kai 101-105, A-1130 Vienna. Please read these documents, which are solely binding, carefully before investing. This is a marketing communication issued by Allianz Global Investors GmbH, www.allianzgi.com, an investment company with limited liability, incorporated in Germany, with its registered office at Bockenheimer Landstrasse 42-44, 60323 Frankfurt/M, registered with the local court Frankfurt/M under HRB 9340, authorised by Bundesanstalt für Finanzdienstleistungsaufsicht (www.bafin.de). Allianz Global Investors GmbH has established branches in the United Kingdom, France, Italy, Spain, Luxembourg, Sweden, Belgium and the Netherlands. Contact details and information on the local regulation are available here (www.allianzgi.com/Info).
For qualified investors in Switzerland
For a free copy of the sales prospectus, incorporation documents, daily fund prices, key investor information, latest annual and semi-annual financial reports, contact the management company Allianz Global Investors GmbH in the fund’s country of domicile, Luxembourg, the Swiss funds’ representative and paying agent BNP Paribas Securities Services, Paris, Zurich branch, Selnaustrasse 16, CH-8002 Zürich or the editor either electronically or by mail at the given address or www.allianzgi-regulatory.eu. Please read these documents, which are solely binding, carefully before investing. This is a marketing communication issued by Allianz Global Investors (Schweiz) AG, a 100% subsidiary of Allianz Global Investors GmbH.