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January 2013 Going global in fixed income. Agenda Going global in fixed income China – another debt bubble in the making? M&G Global Macro Bond Fund The.

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Presentation on theme: "January 2013 Going global in fixed income. Agenda Going global in fixed income China – another debt bubble in the making? M&G Global Macro Bond Fund The."— Presentation transcript:

1 January 2013 Going global in fixed income

2 Agenda Going global in fixed income China – another debt bubble in the making? M&G Global Macro Bond Fund The US – a comeback story

3 Going global in fixed income

4 Going global with M&G in fixed income… Source: M&G, as at 22 November … and exploiting investment opportunities in a £33 trillion market A fully flexible global bond fund has a more than 20 times bigger opportunity set than any pure UK fixed income fund £33 trillion market £bn Source : Bloomberg, as at 31 December The face value of global bonds outstanding is calculated on the basis of the Merrill Lynch Global Sovereign Broad Market Plus Index, Merrill Lynch Global High Yield and Emerging Markets Index and Merrill Lynch Global Broad Market Corporate Plus Index. The face value of UK bonds outstanding is calculated on the basis of the Merrill Lynch Sterling Corporate & Collateralized Index, Merrill Lynch Sterling High Yield Index and the Merrill Lynch UK Gilts Index. Face value of global vs. domestic debt

5 Sterling is up over 16% since 2009 Hurting our exports, while we remain addicted to imported goods A current account deficit this large has historically preceded a sterling crash Source: ONS, Bloomberg, as at December sterling -19% vs US dollar, -17% vs euro sterling -28% vs US dollar, -29% vs Deutsche mark sterling -20% vs US dollar, -15% vs Deutsche mark % of GDP UK current account balance 2012

6 China – another debt bubble in the making?

7 Chinese GDP growth will have to slow down China – the world’s biggest credit bubble since 2009 Annual change in private credit as % of GDP, Source : IMF Global Financial Stability Report, April 2012

8 Emerging markets are not a safe haven A China slowdown has a significant impact on its trading partners Source: Bloomberg, as at 31 December 2012 Which one do you want to be long or short of?

9 Emerging markets are not a safe haven A China slowdown has a significant impact on its trading partners Source: Bloomberg, as at 31 December bps 20 bps

10 The US – a comeback story

11 Net oil & gas import dependency US is likely to become energy self-sufficient Source: International Energy Agency, World Energy Outlook 2012, November % 100% 40% 60% 0% 20% -20% 20% 40% 60%80% 100% China United States India European Union Japan Gas imports Gas exports Oil Imports Heading for energy independence in the next 20 years

12 US GDP YoY (%) Housing inventory – months’ supply (inverted scale) weak growth strong growthshort supply large supply US housing market indicates a solid economic recovery Source : Bloomberg, as at 30 September 2012 The US economy looks in much better shape than the UK and the Eurozone – so how can this be reflected in the portfolio? US new one family homes months’ supply (3m average) vs US GDP yoy

13 Global construction materials Cyclical business, volatile cash flow Unsecured, NA/B-; M&G Rating: B Current yield = 5.6% Performance in 2012 = +40% Improving credit, favoured play on US housing market Source: M&G, Bloomberg, as at 31 December 2012 Mortgages will be refinanced and new houses built The building materials and construction sector looks attractive to us EUR 9.625% 2017

14 M&G Global Macro Bond Fund

15 A flexible and focused global bond fund Source: M&G as at 31 December Ratings as at 30 November and should not be taken as recommendations A ‘go-anywhere’ total return global bond fund Can Invest in all global fixed income asset classes and currencies Designed to outperform the IMA Global bond sector with lower volatility Fund size: £349 million

16 Fund positioning summary M&G Global Macro Bond Fund Key portfolio themes Geographic breakdown % We like the USD and have short positions in sterling, the Japanese yen, the Aussie dollar and Kiwi dollar as well as the SA rand We are very selective – some corporate exposure, but short positions in Brazil, Indonesia, Russia, South Africa & Turkey Quality dominates. Generally we prefer credit over government bonds. Still overcompensates for default, but valuations have come closer to fair value Central banks no longer care about inflation, so we have 24% in linkers Low duration of around 2.4 years We prefer corporate issuers – but have added financials recently, particularly US banks. Currencies Emerging markets Government bonds High yield Inflation Duration Investment grade Source: M&G, as at 31 December 2012

17 Fund positioning summary M&G Global Macro Bond Fund Key portfolio themes Currency breakdown % We like the USD and have short positions in sterling, the Japanese yen, the Aussie dollar and Kiwi dollar as well as the SA rand We are very selective – some corporate exposure, but short positions in Brazil, Indonesia, Russia, South Africa & Turkey Quality dominates. Generally we prefer credit over government bonds. Still overcompensates for default, but valuations have come closer to fair value Central banks no longer care about inflation, so we have 24% in linkers Low duration of around 2.4 years We prefer corporate issuers – but have added financials recently, particularly US banks. Currencies Emerging markets Government bonds High yield Inflation Duration Investment grade Source: M&G, as at 31 December 2012 Short positions

18 Global opportunity set and designed to achieve lower volatility M&G Global Macro Bond Fund Our most flexible bond fund Source: M&G, Morningstar as at 31 December Sterling X Inc class shares, UK database, net income reinvested, price to price. Total return, indexed to % 57.1% 44.6% 41.6% 33.5% 32.8% Credit crisis

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20 Prices may fluctuate and you may not get back your original investment. For financial advisers only. Not for onward distribution. No other persons should rely on any information contained within. This Financial Promotion is issued by M&G Securities Limited which is authorised and regulated by the Financial Services Authority and provides investment products. The registered office is Laurence Pountney Hill, London EC4R 0HH. Registered in England No


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