Built to endure – Allianz Strategic Bond

23/06/2020

Summary

Does it seem like bonds no longer offer any opportunities and that the markets have dried up? The development of the Allianz Strategic Bond tells a different story. For, as it frequently the case, it all comes down to the selection and combination of specific issues. Take a look at our chart, designed to help you understand the requirements for consistent performance - even in a low-rate environment.

So when it comes to bonds, what opportunities are available at the moment? This is a question that investors are increasingly asking as yields remain at historically low levels and are unlikely to become more attractive in the foreseeable future.

Firstly, it is worth reflecting on the rationale for bond investments in the past. There are two principal reasons here:

  1. To generate an income stream and
  2. To diversify a portfolio, i.e. to spread investment risks

The situation on bond markets: zero and negative interest rates

It has become increasingly difficult in recent years to generate income streams with bonds. Coupons on risk-free investments, such as top-rated government bonds, have meanwhile declined to historically low levels. This is due to a multitude of factors, which include:

  • demographic trends
  • high levels of debt
  • low economic growth and
  • virtually no inflation

„To achieve the same yield on bonds today, as was possible ten years ago, you have to be prepared to take considerably more risk.“

The situation on bond markets: zero and negative interest rates

It has become increasingly difficult in recent years to generate income streams with bonds. Coupons on risk-free investments, such as top-rated government bonds, have meanwhile declined to historically low levels. This is due to a multitude of factors, which include:

  • demographic trends,
  • high levels of debt,
  • low economic growth and
  • virtually no inflation.

„To achieve the same yield on bonds today, as was possible ten years ago, you have to be prepared to take considerably more risk.“

Langfristig Wachstumsaktien in Betracht ziehen, kurzfristig aber vorsichtig in Bezug auf Aktien bleiben1,2

Today, the value added that the fixed-income component in a portfolio provides no longer involves generating regular returns. Instead, the focus has shifted to:

  • Diversification benefits – i.e. minimising risk with a broad range of investments - and
  • The potential for capital growth in risk-off market environments, which serve to even out the total return of a mixed portfolio. This means that bonds should be able to partially compensate for losses on equities in falling markets. This assumes, however, that a bond fund actually behaves like a bond fund. In many cases, the performance correlation between bond funds and equities is greater than expected or desired due to the former being heavily weighted towards corporate bonds, for example.
Nachhaltigkeitsgesichtspunkte nutzen, um Stärken und Schwächen zu erkennen1,2

In our view, a number of factors are involved in the successful management of a bond fund. The essential requirements are:

  • An intelligent mix: the fund should behave like a bond fund. In other words, it should act as a support for the portfolio in difficult market cycles and not lose value, and it should also remain stable even in a period of low and negative rates. This can be achieved, for instance, by an intelligent selection and combination of bonds and e.g. derivatives.
  • Global investments: focusing solely on European bonds would severely restrict the investment universe, especially since a large proportion of European bonds are subject to the same financial market conditions. Investing in global bonds may open up additional opportunities.
  • Global collaboration: different points of view are also important. Analysts in Europe may have a different perspective on Asian bond markets. The key lies in exchanging and combining views in order to create an attractive bond portfolio.
Allianz Strategic Bond: Built to endure1
  • In Krisenphasen lohnt es sich, aktive Strategien an den Finanzmärkten zu verfolgen, und dies gilt auch in der aktuellen Pandemie. Aktive Investitionsentscheidungen können das Risikomanagement für die Portfolios verbessern, um Verluste bei sinkenden Märkten abzufangen und die attraktivsten Chancen bei steigenden Märkten zu nutzen.
  • Die Märkte werden derzeit eher von sektorspezifischen Entwicklungen getrieben und erzielen nicht die marktbreiten Erträge (Beta), auf die passive Anleger in den vergangenen Jahren vertraut haben. In dieser Krise wird es sicherlich auch innerhalb der einzelnen Sektoren Gewinner und Verlierer geben, wobei es beträchtliche Unterschiede geben kann; einige Unternehmen werden möglicherweise nicht überleben. Passive Investitionen und Indexinvestitionen sind in bestimmten Situationen durchaus sinnvoll, könnten aber derzeit dazu führen, dass Anleger in unterdurchschnittlich abschneidende Titel investieren oder sogar Zahlungsausfälle hinnehmen müssen.

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1 A performance of the strategy is not guaranteed and losses remain possible.

 

 

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, but it has not been independently verified; its accuracy or completeness is not guaranteed and no liability is assumed for any direct or consequential losses arising from its use, unless caused by gross negligence or wilful misconduct. The conditions of any underlying offer or contract that may have been, or will be, made or concluded, shall prevail. 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 companyAllianz 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. This communication has not been prepared in accordance with legal requirements designed to ensure the impartiality of investment (strategy) recommendations and is not subject to any prohibition on dealing before publication of such recommendations. The duplication, publication, or transmission of the contents, irrespective of the form, is not permitted; except for the case of explicit permission by Allianz Global Investors GmbH.

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