La nueva era de la inversión socialmente responsable
Oportunidades Renta Fija Andy Wells, Fidelity, enero 2013
1. 2013: opportunities and
challenges in fixed
income investing
Madrid Perspectives Event
17 January 2013
Andrew Wells
Global CIO
Fixed Income,
Investment Solutions
and Real Estate
This presentation is for investment professionals only and
should not be relied upon by private investors.
2. Agenda
Macro outlook
Inflation, rates and sovereigns
Credit, high yield and emerging debt
Conclusion
Fixed income fund types for various market scenarios
2
3. Fixed income asset class returns in 2012
Total returns in 2012 (Euro-hedged)
European High Yield 26.6
Global Emerging Market Debt 21.5
US High Yield 15.0
Euro Corporates 13.0
Global Corporates 10.5
Global Inf lation-linked Government 7.0
Spanish Government Bonds 6.0
German Bunds 4.5
US Treasuries 2.1
0.0 5.0 10.0 15.0 20.0 25.0 30.0
Total return (%)
Source: BoA Merrill Lynch, 31/12/2012. Total returns of market indices in Euro-hedged terms
3
4. More positive macro economic news
Economic surprise indices Leading economic indicators
Source: FIL Fixed Income Quantitative Research, 03/01/2013.
4
5. Massive debt burdens are likely to slow the recovery
US debt / GDP by sector % UK gross debt / GDP (excluding Bank debt)
% of GDP
500
450 UK
Government
400
350
Households
300
250
Non-financial
200 companies
150
100 Non-bank
financial
50 companies
0
88 90 92 94 96 98 00 02 04 06 08 10 12
Source: Haver Analytics, 31/12/2011; ONS, Citigroup, 31/03/2012
5
6. US:
Positive but low growth, with housing recovering
US National Multi Housing Council quarterly housing survey
Apartment Market Conditions: Apartment Market Conditions:
Sales Volume Index (Above 50 = Increasing) Debt Financing Index (Above 50 = Improving)
Source: Bloomberg, National Multi Housing Council, 30/06/2012
6
7. Europe:
A downward spiral of structural problems and austerity
Long-term unemployment across the Manufacturing PMIs
Euro area (m/m change, 000s)
Historic real GDP growth per annum (%)
Sources: Sources: Haver Analytics, Bloomberg, RBC Capital Markets, 31/10/ 2012
7
8. China:
Slower growth but the trend is bottoming
Chinese industrial production growth Chinese manufacturing PMIs
Source: Haver Analytics, NBS, Datastream, 30/11/2012.
8
9. Summary: macro outlook
Signs of better growth coming through in US but Europe still under a cloud
Deleveraging across government and personal sectors will slow the pace of economic
recovery
Emerging market growth being reset at a lower but still healthy level
Source: FIL Limited, 03/01/2013
9
10. QE driving an inflationary tail-risk
Central Bank balance sheets US Federal Reserve’s preferred measure
of inflation expectations
3.5 450 4.0 % Fed's 5 year forward breakeven inflation rate
400
3.0
350 3.5
2.5 Ongoing QE
300
2.0 250 3.0
1.5 200
150 2.5
1.0
100
0.5
50 2.0
QE2
0.0 0 Operation
QE1
Jul 07 Jul 08 Jul 09 Jul 10 Jul 11 Jul 12 Twist
1.5
US Fed: Total Assets (US$ trillion) 06 07 08 09 10 11 12
ECB: Total Eurosystem liabilities (EUR trillion)
Bank of England: Holdings of government securities (£
billion, R.H.S)
Source: Bloomberg. 05/11/2012.
10
11. Further monetary stimulus is likely
US Core Personal Consumption Money velocity: Japan and US
Expenditure (PCE)
NOMINAL GDP/MONEY SUPPLY (M2) INDEXED
TO 100 AT START OF RECESSION.
US RECESSION STARTED Q2 2008.
JAPAN RECESSIN STARTED Q2 1991
Source: Bloomberg, Deutsche Bank (31/07/2012)
11 This presentation is for Investment Professionals only and should not be relied upon by private investors
12. DM sovereign credit fundamentals are deteriorating
Govt. Gross Debt (% GDP)
40% 65% 90% 115% 120% 220% 320%
0%
- 1%
2007
2007
Govt. deficit (% GDP)
- 2%
2007
- 3%
2007 2011
- 4%
- 5%
- 6%
2011
- 7%
2011
- 8%
2011
- 9%
US UK
Euro Area Japan
Source: Datastream, IMF World Economic Outlook. 31/08/2012.
12
13. Core government bonds yields are artificially low
US Treasury yields UK Gilt yields
Bund yields Fidelity duration models
Difference between market level
and model fair value
US 1.25%
UK 1.04%
Euro 0.71%
Source: Bloomberg, FIL Fixed Income Quantitative Research, 03/01/2013
13
14. Value in Spanish sovereign debt
Yield spread of 10 year Spanish Government Bonds over 10 year German Bunds
700
600
Spread (basis points)
500
400
300
200
100
0
Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13
Source: Bloomberg, 09/01/2013.
14
15. Summary: inflation, rates and sovereigns
Inflationary tail risks exist, driven by ultra-easy monetary policy
Developed market sovereign credit quality is deteriorating
Core government bond yields offer little value but may remain depressed
Spanish government debt is supported by an accommodative ECB and the OMT
backstop
Source: FIL Limited, 03/01/2013
15
16. Credit fundamentals are sound but turning
Trailing 12 Month Rating Drift
10%
0%
- 10%
- 20%
- 30%
- 40%
Dec- 07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-12
Moody's Europe Direction
Moody's Global Direction
Fidelity Fundamental Rating
Fidelity Fundamental Rating: Corporate
Fidelity Fundamental Rating: Financials + Government + Structured
Source: FIL Ltd, Moody’s. 31/10/2012. Ratings Drift = (Issuer upgrades – Issuer downgrades) / Rated Issuers
16
17. Spreads are attractive, even if yields are at lows
Global high yield Global investment grade corporates
Yield (%) Yield (%)
Spread (bp) Spread (bp)
Source: FIL Limited, Bloomberg (31/10/2012)
17 This presentation is for Investment Professionals only and should not be relied upon by private investors
18. Opportunities in European credit
European non-financial spread to Bunds European spread dispersion by quality
1000
800
600
400
200 AA
A
0
06/2007 06/2008 06/2009 06/2010 06/2011 06/2012 BBB
Source: Morgan Stanley Research, BoA Merrill Lynch Euro Corporate Bond index (ER00), January 2013
18 18
19. Some signs of releveraging, especially in cyclicals
US Corporate Gross Leverage US Corporate Cash / Debt
4.06% 10%
Source: Morgan Stanley – Leverage Finance Chartbook, 13/11/2012.
19
20. High yield:
Low default rates but high prices
High yield default rates and spreads
Basis
2000 points US high yield 20%
US High Yield Spread spread (LHS)
1800 Avg Spread: 566 18%
US Speculative Grade Default Rate (RHS)
1600 Baseline Forecast
US high yield 16%
Pessimistic Forecast
default rate
1400 (RHS) 14%
1200 12%
Pessimistic
forecast
1000 10%
800 8%
600 6%
400 4%
Optimistic
forecast
200 2%
0 0%
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Source: FIL Ltd, Moodys US and Europe Speculative Grade Default Rates (issuer weighted). Bloomberg, BofA Merrill Lynch US High Yield Index (to 31/10/2012)
20
21. EM debt:
Improving sentiment should be good for currencies
EM PMIs and new orders/inventories ratio
Source: FIL Limited, Bloomberg, J.P. Morgan, 31/12/2012
21
22. Summary: Credit, high yield and emerging debt
Credit fundamentals are strong and investment grade spreads attractive
Early signs of releveraging must be taken seriously
Low levels of default continue to support high yield investment
Persistent improvement in global business sentiment will benefit local currency emerging
market debt
Source: FIL Limited, 03/01/2013
22
23. Conclusions
Macro outlook for 2013 and beyond may disappoint as deleveraging across government
and personal sectors slows economic recovery
Inflationary tail risks exist, driven by ultra-easy monetary policy
Developed market sovereign credit quality is deteriorating; core government bond yields
offer little value but may remain depressed
Credit fundamentals are strong and investment grade spreads attractive, but early signs
of releveraging must be taken seriously
Low levels of default support high yield investment
Persistent improvement in global business sentiment will benefit emerging market debt
Opportunities in corporate credit, challenges in government yields
Source: FIL Limited. 03/01/2013.
23
24. Fixed income fund types for various market scenarios
Macroeconomic Scenario Most attractive bond Fidelity Funds that will Appropriate new
asset classes benefit Fidelity products
1) Our base Case: low growth/low rates (highest • High yield • FF Euro High Yield • FF EM Local Currency
probability) • EMD (especially local • FF US High Yield Debt (due Q1 2013)
• Low growth, low interest rates, more QE currency and corporate) • FF Asian High Yield • FF EM Corporate Debt
• Low default rates • Investment grade credit • FF Global High Yield Focus (due Q1 2013)
• Continued search for yield favouring spread product • Inflation-linked bonds (in • FF EM Debt • Brazil Strategic Bond (pilot
• Total returns lower than 2012 as headroom for spread anticipation of longer term • FF Euro Bond due Q1 2013)
compression is now lower QE effects) • FF Euro Corporate Bond • FF Global Income 50% IG /
• HY, IG credit and EMD to outperform government bonds • FF Sterling Bond 35% HY / 15% EMD (due
• FF Asian Bond Q1 2013)
• FF Global Strategic Bond
2) Tail risk: better macro conditions (low probability) Rising interest rates • FF Global High Grade Income
• Material solutions to Eurozone crisis take effect • FF China RMB Bond
• DM growth and investor sentiment recover sharply •Shorter duration • FF Euro Short Term Bond
• Rising government bond yields in anticipation of rate •Absolute return • FF high yield range
rises and a cessation of QE • FIF MoneyBuilder Income
• Fears of rising inflation Reduced Duration
• EM growth accelerates further • FAST FI Diversified Alpha
• Longer duration bonds underperform; credit partly • FF Global Strategic Bond
protected by spread compression; inflation-protection
becomes attractive Rising inflation • FF Global Inflation-linked Bond
•Inflation-linked bonds • FF EM Inflation-linked Bond
3) Tail risk: worse macro conditions (lowest Bad recession • FF Global Strategic Bond
probability) •Strategic bonds • FF Global High Grade Income
• DM economies lurch back into bad recession •High quality sovereigns
• EM growth slows further
• Economic contraction delays recovery in sovereign
debt levels, leading to more sovereign credit Increasing sovereign risk • FF Global Strategic Bond
downgrades •Strategic bonds • FF Global High Grade Income
• Default rates rise dramatically •High quality sovereigns
• Risk assets underperform, particularly high yield and
financials; high quality, liquid sovereigns outperform
Source: FIL Limited, 31/12/2012.
24
25. 3 Year SICAV Performance to 31 December 2012
FF Sterling Bond Fund 8.5
2 BofA ML Sterling Large Cap 9.1
FF US Dollar Bond Fund 8.0
1 BofA ML US Corp & Govt Master Large Cap 6.7
*FF Global Inflation-Linked Bond Fund 4.5
4 BarCap World Government IL Bonds 1 to 10 year Index 5.0
FF International Bond Fund 5.2
2 Barclays Global Agg G5 x MBS 4.9
FF Emerging Market Debt Fund 10.7
3 JPM EMBI Global 12.9
FF US High Yield Fund 10.2
2 BofA Merrill Lynch US High Yield Blended Index 11.5
FF Euro Short Term Bond Fund 3.9
1 BofA Merrill Lynch 1-3 EMU Broad Market 3.1
FF Euro Corporate Bond Fund 7.5
Fund (Net, three year %)
1 BofA ML Euro EMU Corporate 6.5
Comparative index (%)
FF Euro Bond Fund 6.5
1 BofA ML EMU Large Cap Inv Grade 5.5
FF MoneyBuilder European Bond Fund 7.2
1 10.0% BofA ML Euro HY Const; 90.0% BofA ML Euro Large Cap 6.2
FF European High Yield Fund 10.4
2 BofA ML Euro High Yield Constrained 12.1
FF Asian High Yield Fund 9.7
1
BofA ML Asian $ HY Corp Constrained 12.9
%
0 5 10 15
Source: FIL Limited, Morningstar Workstation, 31/12/2012. Performance is net of fees and in fund base currency. Calculation basis is NAV-NAV with gross income reinvested.
Quartile rankings are based on 3 year performance. Excludes institutional and money market funds. Past performance is not a reliable indicator of future results. The value of
investments can go down as well as up and investors may not get back the amount invested.
* FF Global Inflation-linked Bond Fund’s benchmark is 1-10 years whereas the peer group uses longer all maturities inflation-linked benchmarks
* * FF Asian High Yield Fund's Morningstar sector is the Fixed Income Asia Pacific sector composed of 9 other funds only, none of which is a high yield bond fund.
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