Wealth and Investment
Management
Investment Review
The wrong kind of snow?
First Quarter 2014
In this edition...
Regular features
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Investment debate
Discretionary update
MultiManager review
GlobalAccess review
Performance
Find out how disinflation and
volatility are affecting our view
Jaime Arguello
[email protected]
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Underperform
Outperform
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SAA vs TAA
Relative Weight %
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Our portfolio construction
team explains the process of
asset allocation
[email protected]
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Hedging holds the key
A new dawn for emerging markets
Understanding how hedge funds
can diversify your portfolio
Why you should rethink your EM strategy
[email protected]
[email protected]
China’s GDPin $bn over 20 years
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[email protected]
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the past performance of investments and investment
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Welcome
“Conversation about the weather is the last refuge of the unimaginative.” - Oscar Wilde
It appears that Oscar Wilde had very little time for people who insisted on talking about the weather. We can only, therefore,
wonder what he would’ve made of Q1.
January is a difficult month at the best of times. 2014 blew in on the winds of a polar vortex, buffeting the US economy as it
went along, and helping to cast a shadow over sentiment towards the global recovery. However, blaming the weather for all the
disappointment might be too easy an answer. A complexity of headwinds held markets back at the start of the year, with outflows
and currency woes hitting the emerging markets particularly hard. By mid-February, most of the worst-hit equity regions had
rebounded and held firm to the end of March, creating what proved to be a quarter of two very distinct halves.
On the back of the early volatility, we took the decision to reinstate our overweight to developed market equities with a view to
taking advantage of the weakness to buy into names that we’ve liked. On page 31, Senior Portfolio Manager Alastair Randall
discusses how volatility can be a friend to the intelligent investor and outlines some of the specific opportunities we took
advantage of in our discretionary portfolios.
In our committee discussions during the period, we talked a lot about the emerging markets. There is little doubt that the regions’
economies are in the midst of transition, but we believe there are still a wealth of attractive investment opportunities to be
explored. As a result, we are maintaining our neutral exposure to the regions and, on page 20, GlobalAccess Fund Manager Chady
Jouni outlines some of the reasons why.
Another consequence of the weakness we saw in economic data was that bond markets held up unexpectedly well. Bond investors
made positive returns in the first quarter, and our portfolios – being largely underweight the asset classes – suffered on account of
that.
Of all the fixed income sub-asset classes, high yield continues to be the area in which we hold the highest conviction. Our
outlook is for government bond yields to move higher over the next 12 months, reflecting stronger economic growth, the gradual
normalisation of the economic backdrop and the commitment of central banks to keep interest rates low over the medium term,
before ultimately removing stimulus all together.
Our central investment position at this half-way point in the economic cycle is that we are still being paid to take equity risk in
portfolios, while bonds will offer less value as the economic recovery gathers pace – whatever the weather.
Yours sincerely
Rupert Howard
Senior Portfolio Manager, Managing Director
3
Investment roundtable
From Vladimir Putin to the ‘polar vortex’, the new year brought new headwinds for the global
economy and its markets. After the relative calm of 2013, volatility returned to the fray in the first
quarter in a development that boosted safe-haven assets
Hosted by James Thomson, Discretionary
Proposition and Business Development
Participants:
Topics covered include:
Does disinflation matter to portfolios?
Blaming weakness on the weather
Volatility and its virtues
The unified investment view
James Thomson (chair): We had some interesting economic
releases in Q1, offering a mixed picture on the state of the
Olivier Asselin
Jaime Arguello
global economy. Which data points are you watching most
Head of Single Asset Classes,
Fixed Income & Equities
Head of Barclays MultiManager
and GlobalAccess Funds
Piers Cushing
Edmond Klinke
Senior Portfolio Manager,
Dynamic
Senior Portfolio Manager,
Discretionary Portfolios
closely at the moment, and what are they telling you?
Piers Cushing: You’re right, the picture is extremely mixed
right now, and there’s almost as much data out there to
support the pessimistic view as there is to support the
optimism. For me, the most important thing at this stage
of the recovery is corporate earnings and, in particular, I’m
interested in what’s coming out of the US. Last year saw a
general lack of top-line growth and that really needs to be
addressed in 2014 if the global economy is to finally reach
escape velocity. Another indicator that I don’t think people are
paying enough attention to is the deflationary trend that we’re
seeing globally. If this persists over the medium term, it could
start to have implications for markets.
Source: Bloomberg
US Durable Goods Orders (month-on-month % change)
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Edmond Klinke: Piers is right to zoom-in on the corporate
picture. At this stage in the cycle, it’s starting to really matter.
I’m particularly looking at trends in capital expenditure
(capex) – and, basically, what we’re seeing is that there’s just
not enough of it. Linked into that, I’m interested in durable
goods orders relative to shipments (see chart on page 4).
Over the past few years, in the US, durable goods orders as a
percentage of GDP has been 30%. At the moment, it’s around
the 12% mark – this really isn’t strong enough to suggest that
the recovery in sentiment that is visible in other areas of the
market has quite made it into the corporate sector.
Also, considering the cheapness of money at the moment, you
would expect companies to be using this as an opportunity to
invest. Investments made today are, after all, the basis of future
Durable goods: key to the recovery
Released monthly, US durable goods orders are a key
indicator of business investment plans and sentiment.
The measure reflects new orders placed for longlasting domestically manufactured goods (these
include anything from toasters to aircraft, that are
meant to last three years or more). Data for December
suggested that businesses cut back sharply on their
durable goods orders at the end of last year. While the
decline surprised the market, it came on the back of a
sharp rise in the previous month’s release as businesses
rushed to take advantage of expiring tax breaks.
The gauge rebounded in February this year – after two
consecutive months of decline – and there are strong
signs that demand should strengthen further in coming
months even as businesses proceed with caution.
growth. So, if capex isn’t happening now – given the benign
borrowing conditions – when is it going to happen?
Olivier Asselin: Ultimately, it’s a question of confidence. CEOs
James: Ed, is disinflation something that matters at the
are waiting to see a meaningful pick-up in GDP before they
portfolio level?
start investing. But a meaningful pick-up in GDP is unlikely
to occur without more corporate investment – it’s a classic
Edmond: Fundamentally, yes. The developed economies really
catch-22.
do need to get some inflation back into the system; it matters
from a corporate point of view, in terms of debt sustainability,
Piers also mentioned disinflation. This is something that I’m
and it matters for wider economic issues such as wage growth.
also watching closely, as are, it seems, the central banks. In the
Without inflation, there is no real incentive to raise wages and
US and the UK, unemployment has now reached central bank
that has further implications down the economic food chain,
targets, so the agenda appears to be progressively shifting
culminating in how we position portfolios.
towards inflation – and rightly so. This is an issue that investors
really should be paying attention to. A little disinflation here
Piers: Looking at our largest allocation, developed market
or there isn’t a problem, but if the trend is sustained over the
equities: in a low-inflationary environment, we are comfortable
medium term, it could have meaningful implications.
with valuation levels where they are now. But, if overall inflation
is trending lower, then we probably need to be more mindful
Jaime Arguello: For me, it’s not just the level of inflation that
of equity values and what that trend might be telling us about
matters but what the Federal Reserve (Fed) says about it. We
the macro environment we are moving into.
saw, last year, the extent to which Fed communications can
upset markets, and it’s something that I’m following as closely
James: We had some particularly disappointing releases
as the indicators themselves. In terms of the numbers, I think
from the US during the quarter. Is the panel sympathetic
disinflation, particularly in Europe, is worth keeping an eye
to the argument that the weather had a lot to do with it,
on. Short-term declines won’t change the world, but if those
especially with regards to corporate earnings?
declines intensify to a level that forces the European Central
Bank (ECB) to step in with some form of quantitative easing
(QE) that would be an important development.
Piers: I think markets have been very patient with the US
economy over this period; growth is certainly coming through
but it’s been below trend for a while. If the weather is just
another excuse, we’ll find out soon enough because Q2 should
5
show a bounce back in performance – and that’s something
Emerging market debt yields
that I will very much be looking out for.
Nominal Yield Level (%)
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Olivier: From the point of view of business and retail
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confidence, the numbers aren’t all that bad. The US economy
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is certainly not running at full speed, but I do believe the
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weather played some part in the disappointments of Q1. Aside
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from that, the general trend is clearly towards recovery – a slow
recovery, but a recovery nonetheless.
James: What about other regions? The emerging markets,
for example, had a pretty eventful quarter. What issues –
10-year moving average
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3
Jan 93
Jan 98
Jan 03
Jan 08
Jan 13
positive or negative – stood out for you in that market?
Source: Bloomberg
Jaime: Whether you’re directly invested in China or not, what
Jaime: From an historical point of view, volatility in the market
happens there has implications for the wider region as well as
is still fairly low. Where we did have some dispersion in returns
for the global recovery. Chinese growth is slowing and we’ve
was within asset classes, particularly on the equity side. There
just seen the first real exchange-rate volatility since 1994. In
were big differences in returns between sectors and stocks, as
a nutshell, I see mainly downside risk in China. The economy
well as between countries in the emerging markets. So, yes,
is highly leveraged and, from an investor’s point of view, it’s
active managers are being presented with opportunities to
probably going to continue to disappoint over the medium
exploit those falling correlations.
term. If the government steps in to address some of the
economic issues then I think that would be a good thing, but
From a tactical perspective, Barclays as a house moved from
there’s only so much that governments can do. Ultimately, I
neutral back to overweight developed market equities, giving
find it difficult to see any reason to be very positive on China
us the scope to pick up on some of those ideas.
right now. The only question for investors, really, is how
disappointing will it get.
Olivier: I would echo Jaime’s comments that the volatility has
actually been fairly contained. As a result, the action we took
Olivier: I agree with Jaime on all those points except one: the
within our single asset-class mandates was largely at the
extent to which the government can intervene. Let’s not forget
margin. We did reduce the duration of portfolios a bit more and
that China is an intricately planned and controlled society. The
took advantage of the pressure in the emerging markets to add
government takes a very hands-on approach to the economy
to our hard-currency debt positions. We also reinforced our
and it has the tools – i.e. trillions of external reserves – to
stance in the European peripheral markets because the catch-
control the progress of the slowdown, injecting liquidity where
up there was also meaningful.
necessary. I really can’t see the Chinese authorities dropping
the ball at this stage. Okay, yes, there are huge challenges
Where we did see some disappointment was in our exposure
for the Chinese to contend with, but its government has the
to Russia. On the equity side, the impact wasn’t particularly
know-how, the will and the means to manage it.
significant because our positioning there is minimal. On
the fixed income side, however, the impact was a bit more
6
James: Activity in China certainly had a hand in the volatility
meaningful even though we did see some recovery in Russian
we saw in emerging markets in January. And, Warren
assets towards the end of the quarter. More generally,
Buffett, in his recent annual letter, said some interesting
our portfolios benefited from our credit exposure overall,
things about volatility and its virtues. Did any of the panel
particularly in investment grade and emerging market debt
use the early turbulence in Q1 to explore any specific
in hard currency. Our positive high yield position also added
opportunities?
value.
Jaime: From a fixed income perspective, it was a relatively quiet
– up 7.8% in USD terms – as investors sought safety. Our
quarter for the MultiManager portfolios. We’ve continued to
European-focused portfolios benefited from holding EDP – a
reduce our exposure to Japan yields because we believe the
Portuguese electricity and gas name – which allowed some of
market is getting expensive. We also think the level of yield
our clients to partake in the utilities rally.
in peripheral Europe seems to be pricing-in a very benign
scenario. If the ECB does implement QE, it might work out well
James: Speaking of surprises, let’s talk about the UK?
for these bonds but, if not, then the market is very expensive
Despite all the positive sentiment towards the economy, the
in my view. Within equities, most of our managers delivered
country’s stock market struggled last quarter.
positive alpha for the quarter, in spite of the uncertainty –
largely from developed market positions. In terms of portfolio
activity, we reduced exposure to US and UK small- and midcaps on the view that there is now a bit of exuberance in that
area of the market and stocks are starting to look overvalued.
As a result, we are shifting our bias back towards large caps in
these regions. Across portfolios as a whole, we reduced market
beta.
Edmond: For us, there were a couple of interesting ideas that
came up. In terms of exploiting volatility, it’s a case of knowing
the stocks you’re interested in before the volatility happens,
and monitoring the market for that window of weakness to
open up and give you the chance to get into the idea at a
reasonable level. In our portfolios, we saw this play out with
respect to Walt Disney. It was a stock that we’d been interested
in for a while and, in January, it sold off along with the wider
Edmond: Indeed, we were pretty disappointed by that. In fact,
in March, the UK market fell, in sterling terms, as much as the
emerging markets rose, illustrating how mismatched sentiment
and market returns can be sometimes.
James: Piers, how did Q1 play out for the Dynamic
portfolios? And was volatility a factor?
Piers: What’s interesting about volatility is that over the last
couple of years a fundamental institutional trend has been to
sell volatility. But recently – over the last couple of months –
institutional flows and hedge funds, in particular, have gone
from being net sellers of volatility to net buyers. It’s a very
important trend for investors to be mindful of and suggests
that the smart money – the money that can exploit the trade
in volatility – has gone from being net short vol to net long vol.
market – but not for any company-specific reasons that we
In terms of portfolios, Dynamic is fairly conservatively
could see. So we went in and bought the stock at probably
positioned at the moment. In 2013, we suffered from holding
its lowest point. By February, the market had shaken most of
quality, high-grade credit and government bonds, but both of
the volatility off and investors realised how cheap some stocks
these asset classes performed well in Q1 and that was good
had become and, as a result, Disney has just recently bounced
to see. Most of the market was predicting that rates for US
back. There are a number of stocks that went through a similar
treasuries and gilts would rise, but we’ve seen ongoing support
process over the period and any investors who took advantage
for the belly of the curve for the last two or three months.
of January’s weakness would’ve probably done well by the end
This has been positive for us, so we’re quite comfortable with
of the quarter.
holding these positions for now. What’s also been evident is
Other stocks that helped us were US oil and gas company
EOG, which sold off on very little and ended up being our
strongest Q1 holding – up 17%. Healthcare names Covidien
that parts of the market are rotating back from growth towards
value again and, as we have a value tilt in Dynamic, we could
benefit from that.
and UnitedHealth also performed well – both delivering
James: All in all, it’s been a pretty mixed quarter, with
almost 9% – and benefiting from the rally in some of the more
no clear signals from the market about what it might
defensive sectors. Another name that did well for us was BMW
do next. In environments such as this – where different
– a long-term holding within our portfolios – which strongly
interpretations may each be fully justified – how do you,
surprised markets on the upside.
on your desks, reach a single, unified investment view for
The main negative for us in Q1 was our underweight to
portfolios?
utilities. We were surprised by how well the sector performed
7
Piers: One of the great things about this organisation is that
we are spoilt with some exceptionally experienced people and
some really innovative, energetic young thinkers. We’re lucky
to have that, and it’s always a challenge to ensure that all of
these views are aired and given the level of consideration they
deserve. But, of course, there’s always going to be a central
view, and we strive to arrive at that view by way of debate
– robust debate, if necessary – because ultimately we’re all
working towards the same end goal: creating value for our
clients.
Edmond: I agree with Piers, and I love the fact that we have so
many people with so many ideas and views because the more
robust the debate we have beforehand, the more robust our
investment views will be at the end of it all.
Jaime: It’s also worth pointing out that individual managers
have a degree of leeway to express elements of their own
outlook. The current committee structure means that ideas
can be shared, but it is the committee that will form the central
view of the house.
James: I suppose this highlights the value of having an
open architecture, allowing us to ensure the same view is
driven through all portfolios while, simultaneously allowing
portfolios managers to express their own convictions at a
more granular level, for example, through the third-party
managers they select.
Olivier: I believe healthy debate is a must in our industry but,
at the same time, you need to be able to come to a degree
of consensus. Someone has to have the last word. However,
you need to achieve this by ensuring you have a concentrated
investment process. This avoids creating a house view that is
so diluted that you never really outperform the market because
you’re always too close to consensus. There’s a saying that you
never learn from someone who agrees with you.
Emerging markets: slower but surer?
Most people live in emerging markets, so in an
increasingly integrated world, it makes sense to
think that most market capitalisation eventually will
too. Unfortunately, this argument applies only on a
very long-term view (and is no guarantee of good
investment returns even then). China, for example, has
grown 7% per annum faster in real terms than the US
since 1996, yet its stock market has underperformed
the S&P500 by an average 5% per annum. The
emerging world as a whole has grown 3% per annum
faster than the developed world over the same period,
and has contributed most to global growth (a mostly
home-made, not export-driven, contribution). But that
contribution has not done it much good: its rollercoaster stock market performance has left it where it
started in relative terms.
Slower growth in China, and attendant worries
about internal debt and its shadow banking sector,
have unsettled many. China is a big country, and its
numbers can be scary if presented out of context –
which many instant experts are only too happy to do.
Its empty new towns look alarming, its investment
is hugely inefficient, and its pollution is daunting
(London’s recent smog literally pales into insignificance
by comparison with the norm in Beijing or even
Hong Kong). Our view remains however that the
slowdown underway is manageable; we think China’s
consolidated balance sheet is sound; and while we do
not admire the regime, we recognise that it is both able
and willing to act decisively if needed.
China has been a poor investment to date largely
because corporate earnings have not grown anywhere
near as quickly as its GDP might have suggested. But
if its government succeeds in making market forces
play a more “decisive” role – by not, for example,
interfering in the setting of prices, or the direction
of fixed investment and bank lending – then China’s
structural slowdown could coincide with better stock
market performance. There may be less prospective
GDP growth ahead, but if more of it makes its way to
the corporate bottom line it could be more valuable to
investors.
And China, like emerging markets generally, has been
looking relatively inexpensive. Tactically, we have been
sitting on the fence, waiting for more developed-world
monetary normalisation to be priced-in before turning
more positive. But markets may not be so patient.
8
Total returns across key global asset classes
Note: Past performance is not an indication of future performance. For discrete five-year returns, see appendix.
0.1%
Cash and Short-maturity Bonds
0.0%
0.1%
Developed Government Bonds
0.1%
Investment Grade Bonds
0.1%
0.1%
High Yield and Emerging Markets Bonds
Developed Markets Equities
2.6%
2.4%
26.7%
1.3%
-2.6%
Emerging Markets Equities
Commodities
2.0%
-9.5%
-0.4%
-1.0%
7.0%
3.7%
3.6% 3.8%
Real Estate
3.5%
1.1%
Alternative Trading Strategies*
2013
6.7%
2014 (to end of March)
Index Total Returns are represented by the following: Cash and Short-maturity Bonds by Barclays US Treasury Bills; Developed Government Bonds
by Barclays Global Treasury; Investment Grade Bonds by Barclays Global Aggregate – Corporates; High-Yield and Emerging Markets Bonds by
Barclays Global High Yield, Barclays EM Hard Currency Aggregate & Barclays EM Local Currency Government; Developed Markets Equities by MSCI
World Index; Emerging Markets Equities by MSCI EM; Commodities by DJ UBS Commodity TR Index; Real Estate by FTSE EPRA/NAREIT Developed;
Alternative Trading Strategies by HFRX Global Hedge Fund. The benchmark indices are used for comparison purposes only and this comparison
should not be understood to mean that there will necessarily be a correlation between actual returns and these benchmarks. It is not possible
to invest in these indices and the indices are not subject to any fees or expenses. It should not be assumed that investment will be made in any
specific securities that comprise the indices. The volatility of the indices may be materially different than that of the hypothetical portfolio.
9
Portfolio positioning overview
Three pillars of performance:
asset allocation update
By Roberta Gamba, Head of Portfolio Construction
When markets are hitting highs and lows all around you and
Just like any long journey, there will be unforeseen events along
sell-offs are creating possible gateways into new sectors and
the way. These cannot be planned for on a five-year view
securities for your portfolio, the long-term investor might be
so a map with a higher resolution and a shorter timeframe
forgiven for feeling as though there is forever a party going on
becomes necessary. This is where our Tactical Asset Allocation
in the market to which they are not invited. Risk asset returns,
(TAA) complements the SAA with a three- to six-month
after all, never move in a straight line, so once a portfolio is fully
outlook on the asset classes. The TAA is the second pillar of
positioned for the markets’ long-term trajectory, we believe
portfolio performance and gives our managers the flexibility
that – for investors with access to the necessary expertise
to adapt to prevailing market conditions while maintaining the
– there are gains to be made from exploiting asset class
broader exposure as outlined by the SAA.
movements over the medium term.
The final source of performance – the third pillar – comes
At Barclays, our investment strategy is driven by our five-year
from the sector and security selection decisions. We bring
market view and overlaid with our three- to six-month outlook.
together our portfolio managers, our specialists in the various
Used together, these strategic and tactical asset allocations
asset classes and our portfolio construction experts to
allows us to draw on the benefits of both a medium- and a
define Barclays’ best thinking in terms of investment product
longer-term market view.
selection. These ideas provide the starting point for portfolio
managers to then define the best implementation for your
The foundation of our diversification model is the Strategic
portfolio based on your risk profile and investment aspirations.
Asset Allocation (SAA). This is a five-year roadmap that our
portfolio managers use to design the base level allocation
For a full outline of TAA performance and positioning, see chart
of each portfolio we manage. Our SAA is reviewed on a
on page 13.
12- to 18-month cycle, and draws on the outcomes of our
quantitative analysis and qualitative views to forecast the
expected returns for each of the nine asset classes in our
investment spectrum. The SAA seeks to rise above short- and
medium-term market noise to function as the starting point of
the portfolio construction process. From the point of view of
returns, the effect of our strategic allocation is the first pillar of
portfolio performance.
10
Key:
+ overweight, = neutral, - underweight
Equities
+ US equities, + European equities, = Emerging markets
Strategic asset allocation
Our SAA is formed by combining the output
of our quantitative model with the forwardlooking views from the capital market
assumptions formed by senior investment
professionals across the Barclays Group
After the relative calm of 2013, markets saw a return to more normal levels
of volatility in the first quarter of this year. Headwinds from the polar vortex
buffeted the US economy as the crisis in the Ukraine prompted investors to
take cover in safer asset classes. The emerging markets (EM) had a particularly
tumultuous start to the year as growth continues to soften and some central
The nine asset classes and our
positioning*
Cash & short-maturity bonds (7%)
Helps to insulate portfolio against short-term
losses
banks across these regions raised interest rates. As a consequence, global
Developed government bonds (4%)
equity returns for the first quarter looked less attractive from a risk-adjusted
Lower risk, higher yields than cash and
point of view when compared to the performance of fixed income. However,
protection against deflation
these gyrations provided us with the opportunity to reinstate our tactical
Investment grade bonds (7%)
overweight to developed market (DM) equity.
Credit losses are small relative to additional
yield investors can earn
Last November – after securing strong returns from our DM exposure – we
took the decision to lock-in profits by moving the recommended allocation
to neutral and transferring those funds to cash. The correction that we were
positioning portfolios for occurred in the early part of 2014, and we held a
strong enough position in cash to reinstate our developed market overweight,
High yield & emerging markets debt (11%)
Greater risk but with opportunities for active
manager to outperform
Developed markets equities (38%)
allowing managers to pinpoint opportunities amid the volatility. In particular, we
Historically higher risk-adjusted returns than
recommended that managers focus their allocation on sectors and stocks with
bonds over long periods
exposure to the burgeoning domestic growth stories of Europe and the UK.
Emerging markets equities (10%)
High returns over time with higher risk
In the emerging markets, we maintained our neutral tactical view – with an
underlying strategic overweight – as the heavy selling seen across the asset
class over the last year has brought valuations to levels that we consider
attractive. As a result, we do not believe that now is the right time to sell,
however, given the overall soft economic conditions and heterogeneous nature
Commodities (5%)
Protects portfolio better against unanticipated
inflation
Real estate (4%)
of the issues affecting each market, we are not looking to tactically add to our
Real assets providing a diverse opportunity set
exposure just yet – even if flows into this asset class in the last few weeks have
Alternative trading strategies (14%)
meaningfully picked up.
Outcomes: While EM equities rebounded in the latter stages of the quarter,
returns failed to offset earlier Q1 losses and the asset class delivered no return
Dynamic trading strategies aiming to achieve
absolute returns
*Moderate risk profile (3)
to the overall portfolio. Our late-2013 decision to lock in developed market
performance sheltered portfolios from some of the volatility seen in the early
part of Q1. An underweight to the UK contributed to relative returns as the
region’s internationally focused indices suffered from wider global concerns.
Across the rest of the developed market, we benefited from our preference for
US and European equities.
11
Fixed
Income
Alternatives
- Investment Grade, = High yield & emerging
market debt, + Cash
- Commodities, = Real estate, = Hedge funds
We maintained our general underweight to the fixed income
Commodity markets rebounded from a negative 2013 to
market as the long-term trajectory for bond yields remains
outperform all other main asset classes over the quarter.
upwards. Within the individual asset classes, government
We shifted our commodities allocation to underweight in
and investment grade credit are our least favoured segments
the middle of last year on account of the supply-demand
due to our belief that they are overvalued and face specific
imbalances that were evident across the market. The positive
medium-term challenges on account of their sensitivity to
performance so far this year has been driven by rising
interest-rate movements. Within the composite high yield and
agricultural prices linked to the bad weather in the US and
emerging market debt asset class, we maintained an overall
by the rise in gold due to the Ukrainian crisis. These factors
underweight, but with a neutral stance on high yield bonds
do not materially change our view of the asset class since we
and a preference for emerging market debt in hard, rather than
expect them to fade over the coming months. While our low
in local, currency. Our high yield bond exposure benefited from
exposure to commodities sheltered portfolios from losses seen
the shorter duration of these securities, which leaves them less
in the commodity market last year, the position detracted
vulnerable to higher interest rates. Moreover, the strength of
on a relative basis in Q1. Due to the inelasticity of supply, we
the global corporate sector suggests that default risk is limited
believe that, as demand from slowing EM economies remains
and this allows us to further exploit the carry trade between
soft, commodity prices are likely to stay subdued. We maintain
high yield and government bonds.
our overweight exposure to gold, however, for its defensive
attributes.
In the emerging market bond space, our bias remains firmly
tilted towards the hard-currency market, which is largely
In the wider alternatives space, our largest allocation continues
denominated in dollars and, therefore, driven by the more –
to be to the alternative trading strategies, and in particular
stable US treasury yield curve. The local-currency debt market
hedge funds, where we hold a neutral position. Hedge
– with its link to the higher-risk EM currency market – remains
funds are an area of the market where we see increasing
an area to which we are underweight.
opportunities as the lower market correlation and the likelihood
of increasingly market-driven interest rates could give back
On moving from overweight to neutral on developed market
to hedge fund managers a tool with which they generated
equities last November, we used the proceeds to raise our
performance prior to the financial crisis.
allocation to cash. During Q1, we recommended partially
deploying this cash back into developed market stocks.
Outcomes: Gold outperformed the commodity spectrum and
our positive exposure to the metal meant that portfolios were
Outcomes: With fixed income broadly outperforming
less negatively impacted by our underweight to the asset class
equities in Q1, our low exposure to the market was negative
at large. Overall, we continue to see gold as a hedge against
for portfolios on a relative basis. Despite the rebound, the
geopolitical concerns and, with a series of elections taking
medium- to long-term outlook for the fixed income market
places globally this year, we are happy to maintain our gold
remains challenging, and we expect to maintain our cautious
exposure.
stance over the medium to long term. We consider the asset
class generally overvalued and, following the strength of Q1
returns, they have become even more so, in our view.
12
Attribution Allocation effects of TAA decision
Coming into 2014, with the high level of global uncertainty around the political and economic climate; we were
positioned defensively by maintaining an underweight in commodities and high yielding bonds. Although this
positioning is still reflective of our short-term view on the markets, this defensive tactic through the Q1 2014 period
has detracted from the performance. In Q4 2013 we took a neutral position in developed market equities, envisaging
an increase in volatility, we added back into US and UK equity markets in early February, picking up at the lowest level
so far this year.
Underperform
Outperform
8.0
4.0
5
0.0
1
4
3
2
Underweight
Relative Weight %
Overweight
8
7
9
6
-4.0
-8.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
Attribution Allocation Effects from 01/01/2014 to 31/03/2014
Allocation
TAA Weight %
TAA/SAA
Return %
TAA weight
relative to SAA %
Allocation effect
attributed from
tactical decisions %
4.00
-0.43
0.00
0.00
1
Emerging Market Equity
2
Real Estate
10.00
4.01
0.00
0.00
3
Developed Government Bonds
14.00
1.99
0.00
0.00
4
ATS
4.00
1.11
0.00
0.00
5
Developed Market Equity
41.00
1.26
1.63
0.02
6
High Yielding Bonds
8.00
2.38
-3.00
-0.02
7
Investment Grade Bonds
5.00
2.56
-2.00
-0.02
8
Cash & Short Term Bonds
12.00
0.02
6.37
-0.04
9
Commodities
2.00
6.99
-3.00
-0.16
Total
1.45 / 1.67
-0.22
Key
Positive Tactical decision
Neutral Tactical decision
Negative Tactical decision
13
Discretionary – first-quarter performance review
Barclays
Discretionary Portfolios
If you prefer to delegate the management of your investments to Barclays, our discretionary portfolio
management service provides you with access to the extensive resources of the Barclays Group.
You are allocated a designated portfolio manager who utilises the best of our global research and
investment capabilities to deliver your investment objectives and meet your financial goals
After a very rewarding year in 2013, discretionary portfolio performance was subdued, as markets
initially fell then recovered to end the first quarter flat and behind the benchmark.
Actively
managing Asia
Increased volatility in January due in part to the initiation of asset purchase tapering in the US and
We have sold down our
poor data from China dragged on performance, although an equity rally in February and March did
position in the Aberdeen
much to repair the damage. Within individual asset classes, commodities were the top performer
and our underweight position here meant we didn’t capture the full benefit of this move.
Emerging Markets Equity
Strategy on analyst
recommendations, because
we believe it has grown too
Across fixed income, we saw core government bonds gain in the quarter, although key benchmark
large.
rates were more volatile in response to the beginning of US Federal Reserve (Fed) tapering and the
Aberdeen relies on bottom-
adjusted forward guidance from new Fed chairperson Janet Yellen.
up stock picking to find
cheaply valued high quality
In developed markets, inflation continued to trend lower, and while the Fed and Bank of England
may be the first to raise rates, speculation grew that the European Central Bank may have to take
action to combat deflationary pressures. Our short duration positioning in sovereign bonds proved
companies across large
and mid-cap stocks. Assets
under management in its
emerging markets strategy
a detractor to performance, although this was more than offset by our preference for corporate
have grown to USD 53 billion
credit. Our best-performing fund, Neuberger Berman High Yield, returned 3.8% over the quarter.
during the last five years,
making it very difficult to
Following a strong 2013, equity markets were more volatile in the first quarter of this year, with
a New Year sell-off followed by a late recovery. We took advantage of the early moves and added
to positions in developed market equities over the period. The sell-off in emerging markets was
particularly acute, but, despite this, speculation of supportive action from the Chinese leadership
pulled the broad emerging markets index off its lows to finish the quarter only marginally down.
implement new ideas and
generate alpha.
We have replaced Aberdeen
with First State Asia Pacific
Leaders. We believe this
strategy is likely to benefit
from increased positive
Our top-performing UK equity was Weir Group, which returned just shy of 20% in the quarter.
sentiment towards Asia,
Weir Group manufactures and maintains pumps and valves for the oil and gas, mining and power
driven to some extent
markets. The company reported full-year results on 26 February, with strong aftermarket sales in
the oil and gas division. The major boost to expectations came from the mining division where
sales growth beat forecasts.
by potential government
stimulus in China and better
economic data in India. It has
significant investments in
India and Taiwan.
14
On the downside, Rolls Royce detracted from performance, with management guiding to
flat sales, profit and free cash flow in 2014, despite full-year results hitting expectations.
Cuts in global defence spending and lower expected volumes in Trent engine deliveries and
offshore marine, affected forecasts. Regardless of this, we continue to like the stock for its
A view on disinflation
By Piers Cushing, Senior
Portfolio Manager for Dynamic
Disinflation chatter has intensified.
increased focus on cash conversion, cost cutting, and potential M&A.
We’ve been watching it for over a
One of the big stories of the quarter was the distribution by Vodafone of cash and stock
year and it is most obvious across
the eurozone, especially with the
following the sale of its stake in the Verizon Wireless business. The sale, worth USD130
euro remaining strong against
billion, saw Vodafone’s management return the bulk to shareholders as cash and shares in
Asian currencies. EU inflation (CPI)
Verizon, with the balance retained to reinvest in its core businesses.
came in at 0.8% in February, a
noticeable fall from its 10-year
In the UK funds space, we note that the Cazenove UK Opportunities Fund struggled during
Q1 after a long period of outperformance. The fund’s tilt towards the UK cyclical recovery
pulled performance below its benchmark after a strong run in the latter half of 2013.
moving average of 2.3%. Investors
have favoured Europe over the
last year on improving business
fundamentals, but the inflation rate
remains of concern to European
Central Bank (ECB) officials – even
ARC PCI*
Risk Category
at the Bundesbank. We continue
Cautious
Balanced
Steady Growth
Equity
to hold quality bonds which should
Cumulative
Barclays
ARC
Barclays
ARC
Barclays
ARC
Barclays
ARC
1 Year
1.3%
1.9%
2.5%
3.2%
3.6%
4.5%
5.0%
6.1%
3 Years
15.7%
11.2%
13.3%
14.6%
14.6%
17.4%
17.4%
19.8%
59.6%
47.1%
67.6%
61.4%
80.1%
76.7%
5 Years
perform well if inflation numbers
persistently underwhelm.
US profit margins remain
remarkably upbeat and, with spare
capacity, wages have remained
stagnant or even fallen in real
Discrete years
Barclays
ARC
Barclays
ARC
Barclays
ARC
Barclays
ARC
Q1 2014*
1.1%
1.1%
0.7%
0.7%
0.5%
0.5%
0.2%
0.2%
control. However, wages and
2013
2.1%
5.0%
7.5%
9.2%
10.9%
12.5%
14.5%
16.1%
disposable income then become
2012
7.3%
5.8%
7.5%
7.7%
8.5%
8.9%
9.4%
10.1%
2011
5.2%
-0.5%
-2.1%
-2.9%
-4.7%
-4.2%
-6.2%
-5.9%
its impact on GDP.
2010
4.3%*
3.9%*
11.5%
9.8%
12.9%
11.9%
14.3%
14.0%
We are monitoring China closely,
Past performance is not an indication of future performance.
* We provide portfolio performance to Asset Risk Consultants (ARC), who receive performance data from over
50 discretionary portfolio managers which they group into 4 Private Client Indices (PCI) as shown above. This
provides a powerful independent assessment of our performance versus competitors. The cumulative data
and returns use ARC PCI estimates for Q1 2014.
terms, keeping labour costs under
another sensitive issue within the
context of consumer spending and
due to its potential to weaken the
renminbi and export deflation
globally. Year-on-year export
numbers have fallen from 10%
growth to -18%, data we haven’t
seen since 2009, while the
government is reining in credit
Dynamic strategy review
We entered 2014 holding quality assets by way of conventional and inflationlinked government bonds, value-oriented large cap equities, unhedged US dollar,
and conservatively positioned alternative investments.
These characteristics hindered the Dynamic strategy in 2013, but have aided
us in the first quarter as the trend was skewed towards caution with several
variables taking centre stage including inflation, corporate earnings and GDP
data. The quarter did not go to the markets’ consensus plan, which was good
for Dynamic, as quality fixed-income assets globally posted their biggest January
returns since 2008 and equities were subdued.
expansion and Chinese money
supply continues to contract. As
a result, we are cautious on EM
assets.
We are navigating the wider global
macroeconomic landscape with
care, and are acutely aware of
potential future headwinds while
remaining engaged in the markets.
15
A balanced portfolio
is neither market
neutral or long-only
Hedging holds the key to consistent returns
Ishtaj Rahman and Jacobo Penaranda, Alternative Trading Strategy Portfolio Managers, discuss
why Barclays’ innovative fund-of-funds product, Weekly Hedge, is ideally placed to capture market
upside while mitigating losses during periods of market turbulence
Diversification is always a key element of an investment
Generating slow alpha via a balanced fund of funds
portfolio, but particularly in an environment where equity
portfolio
valuations are looking fair or even stretched in certain areas
The aim is to create a balanced portfolio of underlying funds
and prospective fixed income returns are muted at best. While
that is neither market neutral or long-only, but sits between
Barclays Wealth & Investment Management, as a house,
the two extremes. The portfolio is expected to participate
continues to remain positive on developed market equities,
in market upside while also generating returns that are not
the potential for heightened volatility and drawdown risk has
correlated to the market.
undoubtedly increased. Hence there is a need for products
within every portfolio that provide some form of downside
Currently our Weekly Hedge product invests in 12 UCITS hedge
protection.
funds categorised as one of two distinct types according to
their approach to markets. Directional funds are well positioned
Weekly Hedge is a great alternative in this scenario, because
to capture market upside, while uncorrelated funds are much
it is designed to deliver a return stream that has limited
less correlated to markets and could potentially perform under
correlation to traditional markets, providing attractive risk-
any market conditions.
adjusted returns over time. All funds within the product are
compliant with European fund regulations (UCITS), and have
In addition to the skill required in manager selection and
passed Barclays’ investment and operational due diligence
developing strategy views, the added value of Weekly Hedge
processes. They have been chosen specifically to provide
is a dedicated portfolio management team who actively
exposure to a wide range of strategies, including equity long/
blend these underlying funds into a fund of funds to create
short, relative value, event driven and global macro.
consistent risk-adjusted returns. At the end of last year, the
portfolio was 36.5% weighted to directional funds and 63.5%
to uncorrelated funds.
16
Hedge fund investment strategies
Long/short equity
Investors take long positions in stocks that are expected
to appreciate and short positions in stocks that are
expected to decline. Funds can be sector or geographyfocused, or invest across wider markets. The strategy
can be long-biased, market neutral or variable-biased.
Relative value
The simultaneous purchase and sale of two similar
assets, whose prices, in the opinion of the trader, are not
in line with their true value. The fund will sell short the
overpriced asset and buy the underpriced one on the
basis that prices will revert to their true value, creating
profit.
Majedie Tortoise Strategy – Variable Bias
Lazard Opportunities Strategy
Schroeder GAIA Sirios Strategy – Long-Biased
GLG European Equity Alternatives Strategy – Market Neutral
Event driven
An investment strategy that seeks to exploit pricing
inefficiencies that may occur before or after a corporate
event, such as an earnings call, bankruptcy, merger,
acquisition, or spinoff.
Global macro
The strategy of investing based on economic theory.
This is typically based on forecasts and analysis about
interest rates trends, the general flow of funds, political
changes, government policies, inter-government
relations, and other broad systemic factors.
Merrill Lynch York Event Driven Strategy
Julius Baer BF Absolute Return Bond Fund Plus
It is important to note that the funds we categorise as
During sharp market corrections we expect our directional
“directional” are not simply providing beta to markets. We
managers to incur losses. However we expect them to deliver
expect them to deliver alpha over time via their security
positive alpha, thereby mitigating losses when compared to
selection and portfolio management. However they do tend to
traditional long-only benchmarks. Over time, capturing more
exhibit a higher degree of correlation to markets than the funds
market upside during up markets than downside during down
we categorise as “uncorrelated”. Directional funds have a lower
markets will make the difference.
weighting within the portfolio, but a much higher risk profile.
This allows us to capture market upside, as they should deliver
a similar level of returns for a lower weighting.
Our range of UCITS-approved directional and uncorrelated funds
Weight
%
SubPortfolio
Weight %
30 week Correlation
Volatility % to S&P500
Merrill Lynch York
Event Driven Fund
10.0
27.4
7.6
0.7
Schroder GAIA
Sirios Fund
8.0
21.9
7.7
0.8
Indus
AsiaPacifiChoice
Fund
5.5
15.1
10.1
0.5
Julius Baer BF AR
Bond Fund Plus
4.0
11.0
3.1
0.5
Lazard
Opportunities Fund
9.0
24.7
TOTAL Directional
Funds
36.5
100.0
2.9
0.5
Uncorrelated Funds
Directional Funds
Name
Name
Weight %
SubPortfolio
Weight %
Cazenove Absolute
UK Dynamic
10.5
16.5
4.5
0.4
Bluebay Investment
Grade AR Fund
8.5
13.4
1.7
0.1
Henderson Credit
Alpha
10.0
15.7
1.0
0.1
GLG European
Equity Alternatives
10.0
15.7
3.9
0.1
Pensato Europa
Absolute Return
Fund
5.0
7.9
3.1
0.0
Majedie Tortoise
(Offshore)
10.5
16.5
5.7
0.0
Amundi Volatility
World Equity Fund
3.0
4.7
5.1
-0.8
Cash
6.0
9.4
TOTAL
Uncorrelated Funds
63.5
100.0
30 week Correlation
Volatility % to S&P500
17
The process of blending – returns and risk
directional managers, both correlation with markets and
The alpha that Weekly Hedge generates over markets is best
drawdown risk increases, while alpha generation would be too
perceived over time (slow alpha), and is achieved with a risk
small to make a difference to returns over time. However if the
profile much lower than direct equity exposure.
fund is too biased towards uncorrelated managers, the overall
portfolio could fail to capture market upside for extended
A key value-add of the Weekly Hedge portfolio managers
periods, while becoming subject to random returns in the short
is the blending and balancing of directional managers with
run. Appropriate balancing of these two components of the
uncorrelated managers. If the fund is too biased towards
portfolio is critical to delivering the expected returns.
Fund of funds products aim to maintain high correlation to markets, using slow alpha to outperform them over the long term
80
Fund of funds
S&P 500 Index
60
40
20
0
-20
01
1
/2
01
1
/2
01
/0
8
20
10
01
/0
4
20
10
8/
01
/1
2/
20
10
4/
01
/0
01
/0
9
09
20
9
00
01
/1
2/
/2
00
/2
01
/0
8
8
08
01
/0
4
20
8
00
01
/1
2/
/2
00
/2
01
/0
8
20
07
01
/0
4
00
7
/2
01
/1
2/
00
7
/2
01
/0
8
20
06
01
/0
4
6
01
/1
2/
00
6
/2
00
01
/0
8
05
20
/2
01
/0
4
20
05
01
/1
2/
05
8/
20
4/
01
/0
01
/0
04
4
20
00
01
/1
2/
/2
/2
01
/0
4
01
/0
8
00
4
-40
Correlation (S&P 500/Fund of funds)
1.5
1
0.5
0
-0.5
-1
Source: Bloomberg
Active blending
in order to maintain the appropriate risk profile at the
We have provided some examples to demonstrate the active
portfolio level. One example of this was the inclusion of Indus
management of the Weekly Hedge product, highlighting the
PacifiChoice which provided directional exposure to Japan.
importance of adjusting the overall portfolio exposure based
on market conditions in order to deliver the required level of
For the first quarter of 2013, Majedie was flat as markets
risk-adjusted returns.
rallied, but we were able to capture some of the market upside
given our increased allocations to directional managers. Later
At the start of last year we elected to rebalance our portfolio
in the year, Majedie began to perform strongly, maintaining
when the Majedie Tortoise fund changed its emphasis from
its ability to contribute positively during down markets and
long biased (a directional fund) to market neutral. When their
providing Weekly Hedge with downside protection during more
long bias was removed, this indirectly created a shortage of risk
difficult periods such as August.
in the portfolio and an imbalance in the risk budget, affecting
18
our potential to capture market upside. We decided to maintain
Another example of a successful tactical decision was scaling
our position in Majedie based on manager conviction, but
up our position in York Event Driven. Although York had
realised that we needed to increase the exposure to directional
historically exhibited a high degree of correlation to equity
managers at the expense of other uncorrelated managers
markets given its long bias, we noticed that the manager was
generating significant alpha as well. After further investigation
Case Study – Majedie Tortoise
and meeting with York it was apparent that a large number of
events, uncorrelated to markets, had taken place during the
Majedie is in the portfolio mainly because of the high
level of conviction we have about the manager. In
addition, it plays an important role when blended
together with other funds.
period. Perhaps more importantly, we felt that there was still
a significant amount of latent upside in York’s portfolio given
the fertile environment for event-driven strategies, and elected
to increase our position size. This paid dividends during the
It takes a long-term view of markets, avoiding large
draw downs, looking through the stock market cycle
and aiming to achieve positive absolute returns in all
market conditions.
last quarter of 2013 when the manager delivered particularly
strong alpha.
Conclusion
It has a value bias with low leverage, buying liquid
stocks and aiming to buy low and sell high. The fund
aims to find stocks within G7 markets that have the
most attractive risk/reward payoffs; taking both short
and long positions with asymmetric profiles.
While we remain constructive on developed market equities,
the fact remains that most markets have already re-rated
significantly. In addition, the inability of fixed income to provide
meaningful returns right now leaves many investors searching
The fund is up 2.3% during the last three months and
20.6% during the last 12 months. It has grown at an
average of 15% per annum since inception and has
been positive in most up and down months.
for an alternative.
Weekly Hedge can provide a solution to that problem by using
a blend of different alternative UCITS funds to capture equity
market upside and also limit losses in a down market. The fund
aims to generate slow alpha to deliver attractive risk-adjusted
returns over time.
As an uncorrelated fund, Majedie Tortoise aims to gain more when markets fall than it loses when markets rise
240
1900
235
1850
230
1800
225
1750
220
1700
215
Majedie Asset Management Investment Fund Co - Majedie Asset Tortoise Fund (R1)
1650
S&P 500 Index (R2)
210
/2
01
4
01
4
20
14
/2
21
/0
3
03
14
/
3/
2/
20
14
07
/0
/0
/2
01
4
28
01
4
01
4
20
14
/2
21
/0
2
02
14
/
2/
07
/0
20
13
/0
1/
2
03
27
/1
2/
20
13
12
/
/1
2/
20
13
20
20
13
13
/
/1
2/
06
01
3
/1
1.
20
13
25
18
/1
1.
2
20
13
20
13
01
/1
1.
20
13
18
/1
0.
/1
0.
06
/0
9
.2
20
13
9.
/0
06
20
8.
/0
30
01
3
1600
20
13
205
Source: Bloomberg
Glossary
Correlation - A single number that describes the degree of relationship
Beta - The return generated from a portfolio that can be attributed to
between two variables. A fund that follows the market would be highly
overall market returns.
correlated and have a number closer to 1, while a fund that moves
independently to the market would have a number closer to 0.
Positive asymmetry – When a fund moves in the opposite direction to
the markets, but over time gains more than it loses.
Alpha - The excess return of the fund relative to the return of the
benchmark index. The alpha is the portion of a portfolio’s return
independent from market returns.
19
MultiManager team insights
Sense and selectivity: a new
dawn for EM investing
Emerging market debt and equity came into 2014 in the blur of a perfect storm. After the outflows
and underperformance of the previous year, sentiment deteriorated yet further in the first quarter.
Although we firmly believe that these regions remain rife with investment opportunity, both the
dynamics and the drivers of the emerging market (EM) investment story are shifting. Any investor
seeking to be successful in this market must now be prepared to shift too.
Chady Jouni – fund manager for the GlobalAccess Emerging Market Equity Fund – explains why
investors must rethink their EM strategy and, here, he outlines how he has begun to reflect the new
dynamics of the market within his fund
A twist in the emerging market tale
question what they thought they knew about EM investing.
EM growth and the optimism it fostered among the
And, in the process, some important lessons were learned
investment community has been a key characteristic of the
about growth. Take China: over the past 20 years, the country’s
markets over the last 10 years; inspiring a string of acronyms
economy grew at an average of more than 10% per annum.
and investment themes that have coloured many a portfolio.
However, over the same period, the MSCI China was down.
Over recent years, however, a series of headwinds have blown
This illustrates not just how little correlation there is between
in, and the regions’ markets have been underperforming
growth and market returns, but also that growth – from an
their developed market (DM) counterparts ever since. The
investment point of view – doesn’t mean much in the absence
divergence of DM and EM returns peaked in 2013 as global
of corporate profitability.
and local concerns weighed on the latter, and caused many to
China GDP VS MSCI China
MSCI China (USD) over 20 years
China’s GDPin $bn over 20 years
140
9000
8000
ket r
et
urn
100
th
mar
gr
ow
Stoc
k
7000
.....
P
120
GD
ative
al
Neg
e
An
nu
6000
80
3000
2%
40
sp
De
....
2000
20
ite
10
.
4000
Av
er
ag
5000
60
Source: Factset, Barclays Wealth & Investment Management Dec 2013.
20
0
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
31/7/11
31/1/09
31/7/06
31/1/04
31/7/01
31/1/99
31/7/96
31/1/94
1000
0
The proof is in the profits
respective countries – even if it comes at the expense of the
Over the last five years, profitability across the EM corporate
quantity of growth.
sector has deteriorated markedly. The causes vary from
country to country, and range from government intervention
The emerging markets are, therefore, at an economic transition
in the energy sector and rising labour costs in China, to the
point. With the old drivers of growth fading into the back
widespread misallocation of capital that has seen significant
seat, the aforementioned economic reforms – if properly
investment ploughed into low-profitability companies and
implemented – will see smaller, non state-owned companies
projects across the regions.
fuelling the next phase of the EM investment cycle. The
services sectors, in particular, will play an important part.
Return on equity EM VS DM
But the reforms are not yet a foregone conclusion – there are
risks attached. For example, with several EM countries going to
18.0
the polls this year, the outcomes of this cycle of elections will
be critical to the direction that investor sentiment takes next.
16.0
14.0
From emerging to diverging markets
One of the most profound aspects of this economic shift
12.0
8.0
6.0
ROE Emerging Markets
ROE Developed Markets
is that each of the EM countries is now at a different stage
in its economic reform process. It is, therefore, no longer
reasonable for investors to approach the emerging markets
Mar 04
Sept 04
Mar 05
Sept 05
Mar 06
Sept 06
Mar 07
Sept 07
Mar 08
Sept 08
Mar 09
Sept 09
Mar 10
Sept 10
Mar 11
Sept 11
Mar 12
Sept 12
Mar 13
Sept 13
Mar 14
10.0
Source: Factset, Barclays Wealth & Investment Management Mar 2013.
Low interest rates in the developed world, along with
continued quantitative easing (QE) from the US Federal
Reserve, facilitated the 10 year-long ‘beta cycle’ that started
showing signs of losing steam in the second quarter of last
year. In the decade up to then, many investors persisted with
an almost indiscriminate EM investment strategy, failing to
differentiate between countries and industries. With this beta
cycle having drawn to an end, we believe this market is now at
the start of an ‘alpha cycle’ in which the divergence between
country performance will only intensify. Against such a
backdrop, active management will be more crucial than ever.
With the US tapering its asset-purchase program, and
slowing growth in key EM economies marking the end of the
commodity supercycle, China put the proverbial nail in the
coffin of the ‘old investment order’ by persisting with plans to
curb its economic dependence on fixed-asset investment.
China’s commitment to economic reform brings it in line with
many governments across the regions that are undertaking
similar measures to improve the quality of growth in their
as a homogenous bloc. As the key economies become more
driven by fundamentals, what will become apparent is the
extent to which the fundamentals of each of these markets will
increasingly mature and diverge.
It is in this respect that active management will matter.
Passive solutions will expose investors to indices that are still
dominated by the beneficiaries of yesterday’s growth. The
MSCI Emerging Markets index, for example, is heavily exposed
to commodity-related industries (21% of the index) and stateowned enterprises (27% of the index). Both these sectors face
a challenging future as the industries, economic forces and
investment styles that drove markets over the last decade will
not be the drivers of the next.
Meanwhile, most passive EM solutions have lagged their
underlying indices over the last five years due to a nonnegligible tracking error, cost, and structural issues associated
with replicating indices through sampling across a wide variety
of countries, with different currencies.
Glamour vs value
With EM corporate profitability having been a major concern
since 2011, large parts of the investment community have
been chasing the same themes, and driving vast segments
of the index to extreme valuations. This highly polarised
21
investment environment is characterised by the presence of
and, therefore, benefited fully from the dynamics of the post
a large number of very expensive stocks and a large number
financial-crisis market. Among our main positions over that
of very cheap stocks – with precious little in between.
period was an exposure to Aberdeen, which – on the basis of
Investors now face a clear choice between ‘glamour’ (over-
the manager’s quality bias – participated fully in the cycle. In
owned, quality names) and ‘value’ (unloved and undervalued
2013, the manager’s EM assets under management (AUM)
companies) with respect to their stock selection. Despite
peaked at US$60 billion. While Aberdeen was a significant
the current multiple of 10 times earnings for the MSCI EM
performer for the GA fund over several years, we exited the
index – which looks attractive relative to both its own history
position at the beginning of this year on concerns that the
and developed markets – the median price-earnings (P/E)
size of the strategy would impact the manager’s ability to act
for emerging markets is actually much higher at 16.2 times
nimbly, and so expose it to a higher level of liquidity risk than
earnings, further reflecting the dispersion of valuations in the
we were comfortable with taking on.
emerging world.
In preparation for the increased divergence that we expect to
Wide dispersions in EM valuations
see across the EM spectrum, we have introduced three new
managers to the fund, each of whom run a highly selective,
% EM Stocks trading at premium/discount to
the MSCI EM Index
non benchmark-focused strategy. We believe this approach is
vital, given that the index – with its tilt towards the old growth
60%
48.3%
50%
Polarised valuations in
Emerging Markets
40%
drivers – is no longer reflective of the opportunities that exist in
the regions today.
Managers Somerset Capital and Pzena stood out during our
31%
30%
selection process and were added to the fund on the basis of
their high-conviction approach and concentrated strategies.
20%
Somerset – introduced in September 2013 – is a boutique, EM10%
0%
5.6%
5.93%
3.8%
5.3%
dedicated manager, running a portfolio of around 40 names.
Its stock-selection criteria is focused on cashflow generation
20% 10%-20% 0%-10% 0%-10% 10%-20% Above
20%
discount discount discount premium premium
premium
and below
Price to Book Premium/Discount to MSCI EM
and dividend growth and, with a smaller AUM than many of its
competitors, the liquidity risk of the portfolio remains limited.
This allows the manager to remain light enough on its feet to
Source: MSCI, Barclays Wealth & Investment Management 31 Mar 2014.
capture opportunities across the frontier markets and among
smaller-cap companies.
This dispersion has created a dynamic hunting ground for
active EM managers with the skill and the conviction to
capture opportunities in the unloved sectors. Among these lies
the value segment of the market, including quality cyclicals,
financials and companies experiencing positive internal
change. On clear signs that the market has already begun to
Pzena is a US-based, value manager – introduced in February
2014 – and focused on companies with low valuations
compared to their normalised earnings power. The strategy
also targets companies whose management teams have a
viable plan for generating earnings recovery. Pzena’s portfolio is
reward selectivity, it is our view that the most fundamentalsfocused and nimble managers will be among the best
rewarded as this alpha cycle unfolds.
Sense and selectivity
Over the last six years, the GlobalAccess (GA) Emerging
Markets Equity Fund maintained a strong exposure to quality
22
‘Economic growth doesn’t
mean much in the absence
of corporate profitability’
likely to be less vulnerable to the risk of further significant EM
expertise in their respective markets. Our manager selection
outflows as its exposure to over-owned names – particularly in
process remains among the leading strategies in the market
the consumer staples sector – is minimal.
and is designed to pinpoint – not just the managers that
outperformed yesterday – but those that will do so tomorrow.
While Somerset is more defensive, Pzena enables us to capture
the value premium in the market and complement our third
recent addition to the fund: Schroders. This manager’s strategy
is focused on the Asian markets and was introduced in early
Buyer beware: surging valuations
March this year. Schroders targets companies with strong
profitability and a plan for maintaining positive growth over the
long term.
Against this shifting market backdrop, we are now confident
that we have created a blend of managers that will allow
the fund to maintain its bias towards companies with good
profitability, while exploring the emerging opportunities in
the value space. While undertaking these changes, we have
also ensured that the fund’s overall valuation is in line with
the market, meaning that we are not overpaying for our EM
exposure.
The best-in-class managers
As our third-party managers continue to select the best stocks
on the ground, we take pride in our own team’s ability to
secure the expertise of the best managers in the universe.
To achieve this, the GlobalAccess fund is managed by six
fund managers with a diversity of views and finely tuned
Energy
Healthcare
Financials
MSCI EM
15%
20.0
20%
15.0
Asia
30%
Consumer Staples
LatAm
(8%)
Passive
exposure
to Mexico
Passive
exposure
to South
Africa
10.0
5.0
0.0
Mar 04
Sept 04
Mar 05
Sept 05
Mar 06
Sept 06
Mar 07
Sept 07
Mar 08
Sept 08
Mar 09
Sept 09
Mar 10
Sept 10
Mar 11
Sept 11
Mar 12
Sept 12
Mar 13
Sept 13
Mar 14
50%
15%
Europe (5%)
Regional
managers
Valuation defensives vs cyclicals
25.0
Africa & Mexico
(7%)
50%
In recent months, the IT/social media sector
has taken over consumer staples as the most
popular trade for investors wanting to avoid other
structurally declining industries. As a result, the
likes of Tencent – the Chinese internet company –
has seen its share price rise nearly 125% over one
year (as at end of March), and trades at a multiple
of 35x 12-month forward P/E.
P/E NTM
GlobalAccess GEM Portfolio allocation
Global
managers
The consumer staples sector has been a main
beneficiary of the hunt for quality growth and,
today, trades at a significant premium to the
broad market and to its own history. Despite the
sector’s perceived defensiveness, these stocks are,
in our view, vulnerable on account of their high
valuation. Within the sector, the likes of Unilever
Indonesia, Nestlé India or Want Want China are
currently trading at more than 30 times trailing
earnings. Although, these are generally very wellrun, consumer companies, the extreme valuation
premium and the overcrowded nature of the trade
is a source of concern.
Source: Factset, Barclays Wealth 31 March 2014
Source: Target weights. Barclays Wealth & Investment Management
31 Mar 2014
23
Investment highlights
A summary of some of our best ideas:
GlobalAccess Emerging
Market Equity Fund
GlobalAccess Pacific Rim
(ex-Japan) Fund
Investment Objective
Investment Objective
The Fund seeks long-term capital growth primarily
through investment in companies in EM Countries
Third-party managers
Schroders – 30.0%
*Schroders was added to the Fund in March 2014
*Extensive presence in the Asia Pacific region and one
of the largest equity team
Somerset– 20%
*Somerset Capital was added to the Fund in September
2013 *UK-based fund boutique, dedicated to managing
Global Emerging market strategies *High conviction
approach, with a focus on quality and dividend growth
*Concentrated portfolio with a structural underweight
to BRICs
Pzena – 15.0%
*Pzena Investment Management was added to the
Fund in February 2014 *Founded in 1995 by Richard
Pzena and today manages $20bn across US, Global,
European and Emerging market strategies
Arrowstreet – 15.0%
*Arrowstreet was added to the Fund in November 2008
*A core approach, quant-based strategy
ARX Investimentos – 7.0%
*ARX Investimentos was added to the Fund in
December 2011 *Value/income bias
East Capital – 5.0%
*East Capital was added to the Fund in March 2012
Fund Features
The portfolio is split into two, with half being managed
by global EM managers and the remainder by regional
managers
The three global managers, Somerset, Pzena and
Arrowstreet, make asset allocation decisions on a
global basis, mainly from a bottom-up, stock driven
approach
Market Index
MSCI Emerging Markets
24
This Fund seeks long-term capital growth primarily
through investment in companies throughout the
Pacific Rim Region, excluding Japan
Third-party managers
Schroders – 50%
*Schroders was added to the Fund in November 2013
*Extensive presence in the Asia Pacific region and one
of the largest equity team
Hermes – 35%
*Hermes was added to the Fund in March 2014
*Managed by Jonathan Pines *High conviction
approach, All cap strategy focusing on companies
attractively priced relative to their underlying quality
*Focused portfolio (40 to 60 holdings) *Bias to value
stocks and small and mid caps.
Fidelity – Australian equity mandate – 15%
*Fidelity was added to the Fund in May 2011
*Australian equity mandate *A pragmatic approach,
acting opportunistically depending on market cycle,
with no style bias *Short investment time horizon (1-2
years)
Fund Features
The majority of assets are managed by Schroders and
Hermes, who make asset allocation decisions on a
region-wide basis, which come mainly from a bottomup, stock-driven approach
The two approaches are very different and
complimentary, with Hermes, for example, introducing
exposure to small and mid caps
The two fund managers have been chosen for their
experience and their ability to deliver alpha from very
different sources – naturally complimenting each other
We have added an Australian mandate, managed by
Fidelity, to reduce style risk
Market Index
MSCI AC Asia Pacific ex-Japan
MultiAsset – first-quarter performance review
Barclays MultiManager
Portfolios
The MultiManager portfolios are currency-hedged and diversified across traditional asset classes,
regions and third-party managers. Alpha is generated via exposure to third-party investment
managers and the implementation of tactical asset allocation views
Although markets endured contained bouts of volatility during the quarter, performance
across the MultiManager portfolios stayed largely stable and saw only marginal
A view from the manager
market, the balanced portfolio delivered a return similar to its benchmark.
By Jaime Arguello, Head of
MultiManager and GlobalAccess
Funds
Over the period, we continued to shift our bias towards larger-cap companies while
A convergence of positive and negative
locking in profits in the small- and mid-cap sector where performance over recent
forces drove the market from volatility
quarters has been extremely strong. We implemented this shift by eliminating our
in January to a degree of equilibrium by
dispersion in performance between risk profiles. With a lower level of volatility than the
overweight to the GlobalAccess (GA) US Mid and Small Cap Fund and rotating into the
GA US Value Fund. We also implemented a similar shift to less-expensive sectors in the
emerging markets via our exposure to the GA Emerging Market Equity Fund, which
quarter end. After the strength of equity
performance in 2013, we believe the first
quarter of this year represented the start
of a slow trend in markets towards more
introduced US‑based value manager Pzena to the fund in February. Within our UK
balanced equity returns. As markets
equities allocation, we also reduced our bias to smaller-cap stocks.
refocus on corporate fundamentals,
we should see some of the less-loved,
From a tactical perspective, we reinstated a modest overweight to developed market
value-oriented names start to reassert
equities, which involved adding to our position in the GA Global Equity Income Fund.
themselves, particularly in key regions
The move allowed us to increase the defensiveness of the portfolio as we move into an
increasingly challenging investment environment for the rest of 2014. We also bolstered
our position in the GA Japan Fund, bringing our stance back up to neutral after the
underperformance of Japanese stocks during the quarter caused a drift in our relative
positioning.
such as EM and the US.
Given that much of the rest of the
market is trading at, or above, fair value,
we are poised to use any oncoming
volatility to lock in profits in some of the
more expensive parts of the market such
as peripheral European bonds, high yield
The portfolio’s underweight to fixed income markets detracted in Q1 as the asset classes
were buoyed by the earlier flight to safety. Within bond markets, our strongest bias is
towards global investment grade bonds, and the high yield and emerging market debt
or emerging market debt.
While these segments stand out for their
high valuation, there are few areas of the
composite asset class. The GA Emerging Market Debt Fund ended the period behind
market that we believe are cheap. As a
its benchmark, despite positive security selection in Mexico and Brazil by co-manager
result, we expect 2014 to offer far more
Wellington. Lazard, however, saw positive relative returns during the period, mostly on
challenges to investors than we saw
account of spread compression.
in 2013. We believe the key to a strong
portfolio is to stay diversified and benefit
from opportunities captured by active
managers.
25
Portfolio Holdings - MultiManager portfolio
Asset Allocation MultiManager
portfolio
17.3%
GlobalAccess US Value
Ceredex Value
Advisors 40.0%
Cramer Rosenthal
McGlynn 30.0%
Artisan 30.0%
10,2%
GlobalAccess Europe
(ex-UK) Alpha
JPMorgan 35.0%
Cazenove 25.0%
TT International
25.0%
Montanaro 15.0%
9.4%
GlobalAccess Emerging
Market Equity
Schroders 30.0%
Somerset Capital
20.0%
Arrowstreet 15.0%
Pzena Investment
Management 15.0%
5.8%
GlobalAccess US Small
& Mid Cap Equity
Delaware
Investments 40.0%
Kennedy Capital
40.0%
Pyramis Global
Advisors, LLC 20.0%
5.4%
GlobalAccess Japan
Schrodes 50.0%
AllianceBernstein
50.0%
5.0%
US Alpha
INTECH 100.0%
2.3%
GlobalAccess Pacific
Rim (ex-Japan)
Schrodes 50.0%
Franklin
Templeton 37.0%
Fidelity 13.0%
1.6%
GlobalAccess UK
Opportunities
Heronbridge
38.0%
Lindsell Train
30.0%
Majedie
26.0%
1.5%
GlobalAccess UK Alpha
Majedie 35.0%
Jupiter 30.0%
Old Mutual 20.0%
1.3%
iShares MSCI Pacific exJapan UCITS ETF (Inc)
Cash & Short Maturity Bonds
1.0%
iShares S&P 500
Minimum Volatility
UCITS ETF
Investment Grade Bonds
1.0%
GlobalAccess Global
Equity Income
8.6%
GlobalAccess Global
Corporate Bond
PIMCO 100.0%
5.5%
GlobalAccess Global
High Yield Bond
Oaktree 50.0%
4.8%
GlobalAccess Global
Government Bond
PIMCO 100.0%
4.3%
GlobalAccess EM Local
Currency Debt
Stone Harbor
80.0%
Colchester Global
Investors 20.0%
3.0%
GlobalAccess Emerging
Market Debt
Wellington 80.0%
Lazard Asset
Management 20.0%
0.5%
iShares Euro
Government Bond
1-3yr UCITS ETF
0.4%
iShares $ Treasury
Bond 1-3yr UCITS ETF
11.4%
Other
ARX Investimentos
7.0%
East Capital 6.0%
10.8%
16.2%
4.8%
9.6%
45.7%
12.8%
Artemis 15.0%
Developed Government Bonds
Kempen 50.0%
High Yield & Emerging Market Bonds
Sarasin 50.0%
Developed Market Equities
Emerging Market Equities
Source: Barclays
Nomura 50.0%
Source: Barclays
‘Other’ includes cash and futures positions. Be aware, funds investing
in overseas securities are exposed to currency exchange risks.
Portfolio Allocation
Equity Eund
Bond Fund
Investment Manager
Barclays GlobalBeta Funds
GlobalBeta provides a cost-efficient way to invest in
Barclays’ strategic market view using a wide range
of indexed funds, including exchange traded funds
(ETFs).
The total return of all portfolios has been positive for the
quarter driven primarily by fixed income asset classes.
The first month proved to be volatile and the asset
classes that contributed the most are not necessarily
the ones we expected. Geopolitical risk in the Ukraine,
bad weather in the US and guidance from the new
chairwoman of the Federal Reserve, Janet Yellen,
contributed to a rally in gold and agricultural prices,
as well as marginally tighter interest rates. Developed
market equities were positive overall, although we saw
ups and downs through the quarter. After reaching
26
new highs in early January, developed market equities
suffered meaningful draw downs until early February,
but recorded gains in the last part of the quarter.
After a bad start of the year, emerging market debt
and equities rebounded solidly, with debt ending the
quarter up and equities finishing with a slightly negative
performance. Both asset classes benefited from
increased inflows, sustained by cheap valuations, but
without a clear catalyst.
Credit, from investment grade to high yield, provided the
best returns, benefiting from contracting interest rates,
low spreads and low risk defaults. We believe the credit
carry story is still developing.
Equities – first-quarter performance review
GlobalAccess
Equity Funds
GlobalAccess is a specialised range of equity and fixed income funds that combine the expertise
of leading global investment managers with smaller specialist boutiques. Each fund is designed to
achieve investment performance in all market conditions
2014 saw a burst of early volatility for global markets
as uncertainty and signs of economic slowdown
sent investors rushing to safety. The MSCI World
was positive over the quarter, although fixed income
markets outperformed equities, and the emerging
Quality: a quiet comeback
By Ziad Abou Gergi, Fund Manager for the GlobalAccess Global
Equity Income Fund
As a style, income was out of favour for much of last year amid the talk
of tapering by the US Federal Reserve and the subsequent lull in the
markets bore the brunt of early risk aversion from
hunt for yield. However, what was clear to us throughout this period of
investors.
underperformance was that the underlying fundamentals of these companies
– including dividend and earnings growth – remained sound.
EM equities recovered strongly in the last two
With the wider equity market no longer looking cheap, investors refocused
months of the quarter, and against a backdrop of
their attention on valuation and earnings risk during the first quarter. As a
highly dispersed monthly returns, the GlobalAccess
result, quality companies with strong cash flow and disciplined management
(GA) Emerging Markets Equity Fund lagged
its benchmark. Despite its underperformance,
are attracting investor attention and such names are strongly represented
among high dividend-paying names. Over the last year, we’ve seen
companies returning their earnings to shareholders as growth opportunities
the fund behaved as expected – protecting on
and utilisation rates remain low. This resulted in dividends per share
the downside during periods of market decline
outgrowing earnings per share (see chart).
and slightly lagging the index during the kind of
We believe that income stocks should be a key part of any equity portfolio
sharp rally that was seen in February and March.
in 2014 as returns from the wider market are likely to be more moderate
This shortfall occurred in spite of positive stock
selection, particularly in China and Hong Kong.
Similarly, positive stock choices in the Hong Kong
than those of the last two years. As a result, dividends will become a more
important and more stable contributor to overall investment performance.
14%
13%
market supported performance in the GA Pacific
12%
Rim (ex Japan) Fund which strongly outperformed
11%
its benchmark during the quarter. The decision to
10%
replace manager Aberdeen with Schroders in Q1
9%
8%
was highly positive for the fund, and meant all three
7%
underlying managers outperformed their respective
6%
benchmarks.
5%
The GA Europe (ex UK) Alpha Fund also performed
2013 earnings per share growth expectiations
2013 dividend per share growth expectiations
Dec
10
Jun
11
Dec
11
Jun
12
Dec
12
Jun
13
Dec
13
Source: Factset
strongly with three of the managers Schroders,
TT and JP Morgan outperforming on the back
27
of a general tilt towards domestic value names. The fourth
US Small and Mid Cap Equity Fund remains biased towards
manager in the fund, Montanaro, also beat its benchmark,
the technology sector, which gave rise to some of the fund’s
although this time on account of a bias towards quality growth
detractors, including NeuStar – held by manager Delaware
companies. A similar emphasis benefited the GA Global Equity
Investment.
Income Fund which rebounded from a disappointing 2013 for
income stocks to deliver positive returns in Q1 and outperform
After a strong 2013, the GA UK-focused funds continued their
its benchmark. Third-party managers Sarasin and Kempen saw
outperformance into Q1 in spite of UK stock markets generally
gains as income-oriented names – having underperformed
losing ground. The GA UK Alpha Fund successfully protected
last year – benefited from the market’s renewed focus on
on the downside and, in March, we added Old Mutual to the
fundamentals and quality. Investors’ attention on valuation
fund in a reappointment of fund manager Richard Buxton, who
risk and the slowdown in China also supported the income
moved to the firm from Schroders in 2013. This mandate will
strategy.
initially make up 20% of the overall fund, and the manager’s
pro-cyclical style is a useful addition to what is currently a
Last year was also a challenging period for real estate
valuation-driven fund. The UK Opportunities Fund had a
investment trusts (REITs), which saw sentiment turn more
positive Q1, with some of its strongest contributions coming
positive in Q1 as US-tapering concerns eased and investors
from stock selection among financials. Holdings in Rathbone
targeted less-risky, lower-valued assets such as REITs. The
Bros and Hargreaves Lansdown were given a fillip following
GA Global Property Securities Fund was in line with its
changes proposed in the UK Budget in March. Over the period,
benchmark over the quarter on the back of an overweight
we introduced a new manager to the fund, replacing F&C with
to Asia, where sentiment was buoyed by news that various
Majedie.
governments were to pause efforts to cool the property
market. The fund also benefited from strong stock selection in
both Asia and the US.
The other major reversal from 2013 performance was in Japan,
where equities underperformed in Q1 after delivering stellar
returns last year. Sentiment towards the market deteriorated
sharply as investors appeared to lose patience with the
progress of Prime Minister Shinzo Abe’s economic reforms.
The GA Japan Fund outperformed over the period, largely
The GlobalAccess Equity Fund range
• Emerging Market Equity Fund
• Europe (ex-UK) Alpha Fund
• Global Equity Income Fund
on account of stock selection among consumer cyclicals.
Many key contributors over the quarter came from within the
• Global Property Securities Fund
technology sector, and included Fujitsu, video-game maker
• Japan Fund
Capcom, and semiconductor production-equipment maker
Tokyo Electron.
Within the US, performance disappointed as both funds in the
suite fell behind their benchmarks. While value names ended
the period strongly, the GA US Value Fund suffered from its
low exposure to the telecoms sector, while stock selection
among materials also detracted. In the small- and mid-cap
space, Q4 earnings were largely positive, although the sector
endured some volatility in the early part of the year. The GA
28
• Pacific Rim (ex-Japan) Fund
• UK Alpha Fund
• UK Opportunities Fund
• US Small & Mid Cap Equity Fund
• US Value Fund
Fixed Income – first-quarter performance review
GlobalAccess
Fixed Income Funds
GlobalAccess is a specialised range of equity and fixed income funds that combine the expertise
of leading global investment managers with smaller specialist boutiques. Each fund is designed to
achieve investment performance in all market conditions
Global economic growth concerns and geopolitical
unrest in the Ukraine triggered an investor flight to
High time to boost yields
safety that proved to the benefit of bonds. Fixed
By Sabina Raza, Fund Manager for Emerging Market Debt
income markets outperformed equities in the first
Fixed income is not the most attractive asset class at present for investors,
quarter to enjoy their strongest start to the year
however, in high yield there is an opportunity to make decent returns as a pure
since 2008.
yield play, forsaking capital growth.
Our strategic allocation to treasuries fell by half in February 2013 to around
The yield on the 10-year US Treasury note dropped
more than 10 basis points, Spanish and Italian
rates touched record lows and Germany’s 30-year
yield fell to its lowest level since last August. An
overwieght to peripheral Europe, on the part of
manager Pimco, was positive for the GlobalAccess
(GA) Government Bond Fund, which also
4%, while we have taken an underweight position in investment grade bonds
in our tactical asset allocation, lowering overall allocation to 5%. We are also
underweight emerging market debt, preferring hard currency to local currency.
Despite this negativity, we maintain a neutral position in high yield bonds,
increasing our strategic allocation. The main reason for this is the high yields
(above 5%) that can be earned on these bonds.
The GlobalAccess Global High Yield Bond Fund has outperformed most global
high yield bond funds in the Lipper USD High Yield Universe since launch
benefited from an overweight to the 5-year part of
in 2007 (see chart below). The reason for this is the unique access it has to
the UK yield curve. The manager’s underweight to
some of the most experienced fund managers in the sector, blending their
core Europe, especially France, was a detractor for
the quarter. The GA Global Corporate Bond Fund
was slightly behind its benchmark for Q1 despite an
experience together into one fund.
GlobalAccess Global High Yield Bond Fund performance since
inception
overweight to peripheral Europe, especially Italy and
120
Spain, adding value.
100
GlobalAccess Global High Yield Bond Fund
102%
Benchmark Index
Average High Yield Bond Fund
82%
80
The inflation linked bond market saw out the
60
quarter in positive territory as most countries, led
40
held a low relative exposure.
Feb 14
Apr 14
Sept 13
Feb 13
Mar 13
Sept 12
Feb 12
Mar 12
Sept 11
Feb 11
Mar 11
Sept 10
Feb 10
Mar 10
Sept 09
where we were overweight, and France where we
-40
Feb 09
real yield curve offset disappointments from the UK,
-20
Mar 09
along with an overweight to the 10-year part of US
0
Sept 08
positive exposure to the Italian and Danish market,
20
Feb 08
Linked Bond Fund outperformed over the period as
Mar 08
by the UK, performed well. The GA Global Inflation
56%
Source: Factset
29
The fund retains several off-benchmark positions which also
In the local currency segment, country-specific concerns
added value during the period.
weighed on the wider market, however, a late rebound allowed
the market to end the period positive. The GA Emerging
Volatility at the start of the year weighed on the high yield
Market Local Currency Debt Fund lagged its benchmark,
debt market as the asset class lagged investment grade and
largely on the part of co-manager Colchester’s underweight
treasuries in January – but still delivered a positive return –
to Indonesia and Brazilian real (Brazilian bond exposure is fully
before rebounding in February and March. The GA Global High
hedged). On the positive side, the manager benefited from
Yield Bond Fund – managed by Nomura and Oaktree – ended
an underweight to Russia, and a strong position in Mexico.
the quarter ahead of its benchmark as the managers saw
Similarly, manager Stone Harbor also advanced on account
strong gains from telecom-wireless credits. DISH Network – an
of an overweight to Mexico, Brazil and Indonesia, and an
American direct-broadcast satellite service provider – was one
underweight to Russia.
of the fund’s strongest performers after rising on news that it
was entering talks with Japan’s Softbank on a possible fixed-
The best-performing fund in the suite, from a relative point of
wireless broadband partnership. In March, Nomura sold 2017
view, was the GA Global Short Duration Bond Fund, which
Sprint paper (the US telecoms name) which was also positive
enjoyed strong gains from an overweight to peripheral Europe,
for the fund. From a sectoral point of view, performance
in particular Italy and Spain. A positive exposure to the belly of
was largely clustered, with no single sector posting negative
the UK yield curve added further value, along with positions in
returns over the period. Oaktree, in particular, has been highly
select financials.
selective in the new issue market, picking up only one in 10
possible deals due to the limited spread, particularly in Europe.
In the emerging markets, performance remained resilient
in the face of tensions over Russia’s annexation of Crimea
and hawkish commentary from the new US Federal Reserve.
Withstanding much of the headwinds, however, local and
hard currency emerging market debt recorded positive returns
in Q1 and outperformed their developed world counterparts
The GlobalAccess
Fixed Income Fund range
• EM Local Currency Debt Fund
to reverse a trend that had, in part, persisted for over a year.
The GA Emerging Market Debt Fund ended the quarter
behind its benchmark, despite positive security selection
• Emerging Market Debt Fund
• Global Corporate Bond Fund
from co-manager Wellington in Mexico and Brazil, while
manager Lazard saw returns overwhelmingly driven by spread
• Global High Yield Bond Fund
compression. Lazard maintained exposure to investment-grade
• Global Inflation Linked Bond Fund
credit which detracted, although, by March, gains were seen
30
across portfolio holdings in Argentina, Cote d’Ivoire and, on a
• Global Short Duration Bond Fund
relative basis, the underweight to Russia contributed.
• Global Government Bond Fund
Investment strategy
A question of volatility
Events such as the recent Ukrainian crisis remind us as investors how interlinked the global economy
is these days and the impact such events can have on investment portfolios. Alastair Randall, Senior
Portfolio Manager, highlights some of the challenges created by the current economic environment
and explains how our discretionary team is managing them
The Ukrainian crisis made the headlines during the first quarter
volatility by increasing cash positions in our balanced
of 2014 and we may be forgiven for thinking that a dispute
discretionary portfolio, aiming for a more defensive position in
between two former Soviet states doesn’t really concern us
line with our Tactical Allocation Committee (TAC). We raised
as investors, unless we have direct exposure. Digging a little
that cash at the end of the fourth quarter, so we now have
deeper though it becomes clear that events such as this can
broadly 10% in cash (Risk Profile 3) which is adding little right
have serious repercussions in a global economy. Take the price
now; we emphasise to clients that this is a tactical position
of crude oil as an example, which has fluctuated significantly
designed to allow us to take advantage of volatility spikes
as concerns over Russian supplies to Europe grow or ease off.
and invest back into the market as opportunities present
themselves.
Aside from the Ukrainian crisis, a number of other events
have had a similar effect on markets, the state of the Chinese
We have already used the sell-off at the end of January to add
economy and US monetary policy are two relevant examples
to some equity positions, moving into developed markets at
that have led to increased sensitivity in asset prices. The result
cheaper valuations. This was a proactive move, although it has
of this is increased volatility.
to be stressed that we are investors rather than traders and are
always influenced by TAC guidance.
We find that volatility is often poorly understood by investors,
in that it is often used as a proxy for losses. Put simply, when
volatility is high they don’t want to invest. Our view is different;
fallen. This behavioural aspect led many investors to enter
volatility was low, rather than a few years earlier when volatility
was higher but there were large gains to be made.
As portfolio managers, we are acutely aware of volatility in our
50
40
30
portfolios and we will use all the instruments at our disposal to
20
predict and manage it, attempting to turn it to our advantage.
10
20
10
Managing volatility will become more crucial as we move into
0
31
/1
2/
Positioning a portfolio for volatility
3/
20
11
33
/0
7/
20
11
03
/1
0/
20
11
03
/0
1/
20
12
03
/0
4/
20
12
03
/0
7/
20
12
03
/1
0/
20
12
03
/0
1/
20
13
03
/0
4/
20
13
03
/0
7/
20
13
03
/1
0/
20
13
03
/0
3/
20
14
the market during 2013 when equity valuation were full and
CBOE Volatility Index (VIX)
60
/0
volatility, as there is a good chance that markets will have
Volatility reached its highest level in March since
December 2012
03
we see potential opportunities to invest during a period of
2014 and see the possibility of it increasing in a recovering
global economy. At the end of last year we sought to combat
Source: Bloomberg
31
Implied volatility and derivatives
Managing downside risk in an environment of low
Knowing when to invest requires an accurate way of
sovereign bond yields
monitoring volatility. We can monitor realised volatility by
The overvaluation of developed market sovereign bonds has
looking at recognised indices such as the VIX, however this is
held down yields, meaning we have significantly reduced our
not always a good indicator of what is likely to happen moving
holdings to around 4% of the overall discretionary portfolio,
forward. Implied volatility measures the volatility of an asset or
quite an extraordinary situation.
portfolio over a set period of time, and is a major factor in the
pricing of options. As active portfolio managers we are able to
It has proven to be a great call to make this move, but such a
use options to enhance returns or to manage downside risk,
position does start to influence how we manage the downside
and market volatility has a significant part to play in how we
risk in the portfolio without the classic hedge provided by
approach this.
sovereign bonds. As a result, we have started to look at other
instruments to manage risk. We have been very consistent and
We can also choose to use options for hedging or directional
successful with our strategy of underweighting sovereign debt
purposes. Our broad philosophy is that we shouldn’t be
and putting more into developed market equities, but you can’t
making any big punchy directional bets and use options as
park it all in equities since any market volatility will significantly
more of a hedging tool to protect against downside, although
increase downside risk in an equity heavy portfolio.
we may also use them to reduce exposure to a particular
equity without selling the physical asset.
Long puts, for example, allow us to continue holding direct
equities or bonds, reducing turnover and allowing longer term
high conviction positions to be maintained.
In 2008/09 when implied volatility was high, we saw
structured products come to the fore, it was a time to sell
volatility. Alternatively last year we bought a long put option
when volatility and options prices were low to provide ongoing
downside protection for our portfolio. As it was, markets
kept going up and we spent 0.5% of performance with no
gain, although we were happy to do that in order to provide
protection for our investors, consistent with our philosophy.
The mercurial nature of gold
An environment of low bond yields has pushed gold
into the spotlight as an important asset able to reduce
correlation in portfolios. We do see diversification value
in gold and carry it in our portfolio for that reason,
although the danger is that gold is very mercurial in
nature and difficult to price. At various times in history
gold has moved in different directions depending on
investor sentiment and macro-economic environments.
Gold may rise with oil; when oil supplies are threatened
it tends to increase risk aversion and can lead to a rush
for safe havens like gold. Gold may move inversely
to the US Dollar as improving investor sentiment
leads to investment in equities. Gold prices may also
be influenced by large buyers such as central banks
deciding to offload or buy in significant quantities.
Gold vs Oil vs S&P 500 - Gold is difficult to price showing low correlation to other assets
160
Gold
150
WTI Crude Oil
S&P 500
140
130
120
110
100
90
31
/1
2/
20
10
03
/0
3/
20
11
03
/0
5/
20
11
33
/0
7/
20
11
03
/0
9/
20
11
03
/1
1/
20
11
03
/0
1/
20
12
03
/0
3/
20
12
03
/0
5/
20
12
03
/0
7/
20
12
03
/0
9/
20
12
03
/1
1/
20
12
03
/0
1/
20
13
03
/0
3/
20
13
03
/0
5/
20
13
03
/0
7/
20
13
03
/0
9/
20
13
03
/1
1/
20
13
03
/0
1/
20
14
03
/0
3/
20
14
80
Source: Bloomberg
32
Alternative trading strategies (ATS) play an important part in
The outlook for 2014
this, as there is an expectation they may perform well in more
If growth surprises in the US economy, driven by a stronger
volatile environments where we might expect to see significant
than expected resurgence in the private sector, this is likely to
tail risk.
produce a spike in bond yields. The whole US yield curve could
shift upwards, or the curve might steepen. Equities may initially
We currently use funds such as the Amundi Volatility World
react negatively, but ultimately a stronger economy will drive
Equity Fund (long volatility) and the Fore Multi Strategy / Short
them higher.
European and Japanese Sovereign Credit Funds , which are
uncorrelated to equity markets.
I don’t think we will see a sudden spike in the VIX above 30
and a huge sell off happen, but it wouldn’t surprise me to see
We are also able to move into long/short funds to manage
more volatility as we move away from an era of quantitative
downside. An example of this is the Schroder GAIA Sirios Fund,
easing back to a more normalised interest rate policy.
recommended by our hedge fund desk. This year we pulled
2% of our exposure out of a natural long only equity fund and
We aim to use all of the tools discussed in this article, ranging
put it into Sirios, which has a good track record of managing
from options, volatility funds and uncorrelated assets such
downside risk. This was a reflection of our view that there is a
as fixed income and gold, to insulate our portfolio from these
risk of higher volatility moving into 2014.
changing market conditions to the benefit of investors.
In the event of extreme volatility in developed market (15/20%
falls), Amundi and Fore would be very important to us,
Sterling has reached a plateau this year against the US Dollar
USD/GBP
alongside gold and sovereign debt. We have shaped our whole
ATS allocation to be uncorrelated to the equity element, so
it’s a powerful tool for managing the risk budget of the overall
1.70
1.65
portfolio.
1.60
The pattern has abated in 2014, as the dollar has
strengthened on tapering and emerging markets
tension, resulting in Sterling investors seeing a small
gain on investments across the first three months of
the year.
Elsewhere we currently have a three year USD/CHF
structured note in the portfolio representing 2% of
overall allocation. The note plays on our belief that we
will see capital outflows from Switzerland as the US
economy recovers, weakening the Swiss Franc. The
trade has performed poorly to-date, but our conviction
is that the US Dollar will strengthen further in 2014.
1.50
1.45
31
/0
1/
20
03
13
/0
3/
20
03
13
/0
4/
20
33
13
/0
5/
20
03
13
/0
6/
20
03
13
/0
7/
20
03
13
/0
8/
20
03
13
/0
9/
20
03
13
/1
0/
20
13
03
/1
1/
20
03
13
/1
2/
20
03
13
/0
1/
20
03
14
/0
2/
20
03
14
/0
3/
20
14
The strength of the British pound created some
headwinds for our investments throughout 2013
given that Sterling investors had around a third of
their portfolios in US dollar-denominated assets. Fully
invested clients gave up about 0.5% of performance
during the year and those investing midway through
the year fared even worse. Dollar investors on the other
hand saw a small currency-related boost.
1.55
Source: Bloomberg
Tapering should help the US Dollar to strengthen this year
USD/CHF
1.00
0.98
0.96
0.94
0.92
0.90
0.88
0.86
31
/0
1/
20
03
13
/0
3/
20
03
13
/0
4/
20
33
13
/0
5/
20
03
13
/0
6/
20
03
13
/0
7/
20
03
13
/0
8/
20
03
13
/0
9/
20
03
13
/1
0/
20
03
13
/1
1/
20
03
13
/1
2/
20
03
13
/0
1/
20
03
14
/0
2/
20
03
14
/0
3/
20
14
Volatility and currency risk
Source: Bloomberg
33
Appendix
Discrete annual performance is listed only from the launch date of the fund
Strategic and tactical asset allocation performances
Q1
YTD
1 Year
3 Years
3 Year
Volatility
Since
Inception
2013
2012
2011
MSCI AC World (USD)
1.10%
1.10%
16.60%
8.60%
14.30%
14.50%
22.80%
16.10%
-7.30%
BarCap Global Agg Hdg
(USD)
2.00%
2.00%
1.30%
4.40%
2.50%
3.60%
-0.10%
5.70%
5.40%
3-Month Libor (USD)
0.10%
0.10%
0.20%
0.30%
0.00%
0.30%
0.30%
0.40%
0.30%
Strategic Asset Allocation
($ RP3)
1.70%
1.70%
8.00%
5.50%
8.90%
9.40%
10.00%
11.80%
-3.70%
Tactical Asset Allocation
($ RP3)
1.50%
1.50%
8.60%
5.60%
9.20%
9.20%
11.30%
11.50%
-3.80%
Inflation (CPI - US)
0.40%
0.40%
0.50%
1.50%
1.10%
1.90%
1.50%
1.70%
3.00%
Asset Class performance 2004-2013
Higher
Return
Lower
Return
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Cumulative
Performance*
38.0%
34.0%
41.8%
39.4%
9.1%
78.5%
19.6%
5.5%
27.7%
26.7%
11.2%
25.6%
21.4%
32.2%
16.2%
2.4%
37.1%
18.9%
4.8%
18.2%
6.5%
8.2%
14.7%
14.9%
20.1%
9.0%
-5.1%
36.0%
16.8%
2.9%
17.4%
3.7%
7.7%
12.1%
9.5%
11.1%
5.6%
-18.4%
30.0%
13.5%
0.1%
15.8%
0.1%
7.0%
9.1%
7.8%
9.3%
5.0%
-23.3%
18.9%
11.8%
-5.5%
10.9%
0.1%
4.9%
5.5%
5.0%
4.8%
4.2%
-35.6%
16.6%
7.2%
-6.5%
4.5%
0.1%
4.2%
4.8%
3.5%
3.6%
3.2%
-40.7%
13.4%
5.2%
-8.9%
3.5%
0.1%
1.7%
2.7%
3.0%
3.3%
2.7%
-48.2%
1.0%
3.6%
-13.3%
0.1%
-2.6%
1.0%
1.2%
2.7%
2.1%
-7.4%
-53.3%
0.3%
0.2%
-18.4%
-1.1%
-9.5%
0.9%
Emerging
Markets
Equities
Real Estate
Developed
Markets
Equities
High Yield
& Emerging
Markets
Debt
Investment
Commodities Grade
Bonds
Cash
Developed
and ShortGovernment
maturity
Bonds
Bonds
Alternative
Trading
Strategies
Past performance is not a guarantee of future performance
Note: Diversification does not protect against loss. Index returns are represented by the following: Cash & Short maturity bonds represented by Barclays US Treasury
Bills (USD); Developed Government Bonds by Barclays Global Treasury (Hedged in USD); Investment Grade Bonds by Barclays Global Aggregate - Corporates (Hedged
in USD); High Yield/Emerging Markets by Barclays Global HY (66%) (Hedged in USD) & Barclays EM Hard Currency (34%) (Hedged in USD) up to June 2008, Barclays
Global HY (40%) (Hedged in USD) & Barclays EM Hard Currency (20%) (Hedged in USD) & Barclays EM Local Currency Government (40%) (USD) from July 2008 onwards; Developed Markets Equity by MSCI The World Index Net (USD); Emerging Markets Equity by MSCI EM Net (USD); Commodities by Dow Jones UBS Commodity
TR; Real Estate by FTSE EPRA/NAREIT Gross up to February 2005, FTSE EPRA/NAREIT Net from March 2005 onwards; ATS by HFRX Global Hedge Fund (USD). Source:
DataStream, FactSet and Barclays. *Annualised return
34
Barclays MultiManager Portfolios - As at 31 March 2014
The returns are calculated using swung pricing
Inception
Date
5 year
return
(p.a.%)
3 month
return (%)
Year to Date
(%)
Net
MI
Net
MI
Net
2013 return
(%)
2012 return
(%)
2011 return
(%)
2010 return
(%)
2009 return
(%)
MI
Net
MI
Net
MI
Net
MI
Net
MI
Net
MI
Barclays MultiManager Luxembourg Portfolios
MultiManager Portfolio
1 GBP
23/10/2006
0.6
1.0
0.6
1.0
7.6
5.4
4.4
5.2
5.2
5.6
0.2
1.3
7.2
4.5
18.0
8.4
MultiManager Portfolio
2 GBP
23/10/2006
0.8
1.2
0.8
1.2
10.4
8.6
8.5
9.9
10.9
8.7
-3.4
-0.1
8.5
6.5
24.8
13.9
MultiManager Portfolio
3 GBP
23/10/2006
0.7
1.3
0.7
1.3
11.8
10.9
12.4
13.5
12.2
10.9
-5.3
-1.3
9.8
7.9
27.4
17.9
MultiManager Portfolio
4 GBP
23/10/2006
0.7
1.1
0.7
1.1
12.8
13.4
15.0
18.7
13.3
13.2
-7.0
-3.6
9.7
9.2
30.2
22.9
MultiManager Portfolio
5 GBP
23/10/2006
0.6
1.0
0.6
1.0
13.9
14.5
16.2
21.4
13.7
14.1
-7.4
-4.8
10.3
9.6
33.3
25.3
Barclays MultiManager Dublin Portfolios
UK Balanced
01/10/2004
1.0
1.3
1.0
1.3
10.0
7.3
12.7
13.5
10.8
10.5
-7.1
-1.4
12.3
7.9
14.4
18.1
UK Balanced Plus
29/10/2004
1.0
1.2
1.0
1.2
11.0
7.9
13.8
16.1
11.8
11.5
-9.1
-2.5
12.7
8.6
18.3
20.6
UK Growth
01/10/2004
1.0
1.1
1.0
1.1
11.7
8.5
15.7
18.7
12.3
12.6
-10.4
-3.6
13.1
9.2
21.1
23.2
UK Growth Plus
01/10/2004
0.6
1.0
0.6
1.0
13.1
9.0
19.0
21.4
14.2
13.4
-12.3
-4.9
14.4
9.8
23.7
25.6
Info
Source: Barclays, Factset, Lipper. Net income reinvested: Barclays MultiManager Luxembourg Portfolios (D Distribution GBP share class).
Net income reinvested: Barclays MultiManager Dublin Portfolios (B Distribution GBP share class).
MI: Market Index, details are shown below
Net: the returns shown for Barclays MultiManager Portfolios are net of annual fees
MI: Market Index definitions: Cash = LIBOR GBP 3 Months / High Yield Emerging Market Bonds = Barclays Global High Yield / Short-Maturity Bonds = Barclays Global Treasury 1-3 Year / Global Investment Grade Bonds = Barclays Global Aggregate / Equities = MSCI All
Country World
Luxembourg MultiManager Portfolio 1 GBP Market Index: 10% Cash / 40% Short-Maturity Bonds / 30% Global Investment Grade
Bonds / 20% Equities
Luxembourg MultiManager Portfolio 2 GBP Market Index: 10% Cash / 15% Short-Maturity Bonds / 35% Global Investment Grade
Bonds / 40% Equities
Luxembourg MultiManager Portfolio 3 GBP Market Index: 10% Cash / 35% Global Investment Grade Bonds / 55% Equities
Luxembourg MultiManager Portfolio 4 GBP Market Index: 5% Cash / 20% Global Investment Grade Bonds / 75% Equities
Luxembourg MultiManager Portfolio 5 GBP Market Index: 5% Cash / 10% Global Investment Grade Bonds / 85% Equities
MultiManager UK Income Market Index: 5% Cash / 15% Short-Maturity Bonds/ 60% Global Investment Grade Bonds / 10% High Yield
Emerging Market Bonds / 10% Equities
Benchmarks
MultiManager UK Income Plus Market Index: 5% Cash / 60% Global Investment Grade Bonds / 25% High Yield Emerging Market
Bonds / 10% Equities
MultiManager UK High Income Market Index: 5% Cash / 40% Global Investment Grade Bonds / 40% High Yield Emerging Market
Bonds /15% Equities
MultiManager UK Dividend and Growth Market Index: 5% Cash / 25% Global Investment Grade Bonds / 70% Equities MSCI UK
MultiManager Dublin UK Balanced Market Index: 10% Cash / 35% Global Investment Grade Bonds / 55% Equities
MultiManager Dublin UK Balanced Plus Market Index: 7.5% Cash / 27.5% Global Investment Grade Bonds / 65% Equities
MultiManager Dublin UK Growth Market Index: 5% Cash / 20% Global Investment Grade Bonds / 75% Equities
MultiManager Dublin UK Growth Plus Market Index: 5% Cash / 10% Global Investment Grade Bonds / 85% Equities
As of this update, performance of MultiManager is compared to a Market Index, comprised of different mixes of Cash, Short-Maturity
Bonds, Global Investment Grade Bonds and Global Equities. The mixes are statistically optimised to correspond to varying risk profiles.
This Market Index replaces the past reference to a basket of sub-asset classes that, in combination, matched the specific weightings of
the overall asset classes within MultiManager.
35
Barclays Discretionary UK Portfolios - As at 31 March 2014
Inception
Date
3 month
return (%)
Year to
Date (%)
5 year
return
(p.a.%)
2013 return
(%)
2012 return
(%)
2011 return
(%)
2010 return
(%)
2009
return (%)
Gross
BM
Gross
BM
Gross
BM
Gross
BM
Gross
BM
Gross
BM
Gross
BM
Gross BM
Barclays Discretionary UK APCIMS Portfolios
UK (APCIMS) Income GBP
31/12/2005*
0.2
0.7
0.2
0.7
11.1
10.7
12.3
10.0
7.6
7.8
-1.0
3.1
12.6
11.4
20.7
14.2
UK (APCIMS) Balanced
GBP
31/12/2005*
0.2
0.5
0.2
0.5
12.3
12.0
15.3
14.1
8.6
9.1
-3.3
0.2
13.7
12.5
23.3
16.6
UK (APCIMS) Growth GBP
31/12/2005*
0.1
0.2
0.1
0.2
13.6
13.2
17.2
17.0
9.1
10.0
-4.8
-2.3
15.2
13.4
26.3
19.8
Barclays Discretionary IP Portfolios - As at 31 March 2014
Inception
Date
3 month
return (%)
Gross
Year to
Date (%)
Since Inc.
return
(p.a.%)
2013 return
(%)
2012 return
(%)
BM
Gross
BM
Gross
BM
Gross
BM
Gross
BM
Barclays Discretionary IP Portfolios - March 2014
Sterling Profile 2
31/05/2011
0.6
1.4
0.6
1.4
3.7
5.1
7.9
7.7
6.9
6.1
Sterling Profile 3
31/05/2011
0.6
1.4
0.6
1.4
4.5
5.9
10.4
10.1
8.3
7.2
Sterling Profile 4
31/05/2011
0.4
1.3
0.4
1.3
4.9
6.4
11.8
12.2
9.7
7.9
Sterling Profile 5
31/05/2011
0.4
1.2
0.4
1.2
5.4
6.8
14.0
13.8
9.6
8.4
Dynamic
02/04/2012
1.0
0.7
1.0
0.7
5.4
4.0
4.9
4.0
* Portfolios existed before this date but composite data is only available from 31/12/2005 onwards
Info
Source: Barclays, Factset, Lipper
BM: Benchmark, details are shown below
Gross: the returns shown are gross of management charges
BM: Performance shown for GBP portfolios corresponds to the following asset classes:
UK (APCIMS) Income: 40% FTSE All Share / 15% FTSE World ex UK / 35% FTSE Gilts All Stock / 2.5% FTSE Hedge/ 2.5% FTSE Property / 5% 7 Day Libor -1%
UK (APCIMS) Balanced: 42.5% FTSE All Share / 27,5% FTSE World ex UK / 17,5% FTSE Gilts All Stock / 5% FTSE Hedge / 2.5% FTSE
Property / 5% 7 Day Libor -1%
UK (APCIMS) Growth: 47.5% FTSE All Share / 32.5% FTSE World ex UK / 7.5 FTSE Gilts All Stock / 7.5% FTSE Hedge / 2.5% FTSE
Property / 2,5% 7 Day Libor -1%
Benchmarks
Sterling Profile 2: 13.5% FTSE ALL SHARE - RETURN (GBP) / 19.5% MSCI WORLD EX UK - NET RETURN (GBP) / 25% Barclays Capital
Sterling Aggregate (GBP) / 5% Dow Jones-UBS Commodity Index (GBP) / 13% DJ Credit Suisse Hedge Fund Index (GBP) / 5% IPD All
Property Index - United Kingdom in GBP / 19% Bank Of England Base Rate -1% (Floating Rate)
Sterling Profile 3: 18% FTSE ALL SHARE - RETURN (GBP) / 26% MSCI WORLD EX UK - NET RETURN (GBP) / 23% Barclays Capital
Sterling Aggregate (GBP) / 6% Dow Jones-UBS Commodity Index (GBP) / 13% DJ Credit Suisse Hedge Fund Index (GBP) / 4% IPD All
Property Index - United Kingdom in GBP / 10% Bank Of England Base Rate -1% (Floating Rate)
Sterling Profile 4: 21.5% FTSE ALL SHARE - RETURN (GBP) / 31.5% MSCI WORLD EX UK - NET RETURN (GBP) / 19% Barclays Capital
Sterling Aggregate (GBP) / 6% Dow Jones-UBS Commodity Index (GBP) / 12% DJ Credit Suisse Hedge Fund Index (GBP) / 4% IPD All
Property Index - United Kingdom in GBP / 6% Bank Of England Base Rate -1% (Floating Rate)
Sterling Profile 5: 24% FTSE ALL SHARE - RETURN (GBP) / 36% MSCI WORLD EX UK - NET RETURN (GBP) / 16% Barclays Capital
Sterling Aggregate (GBP) / 6% Dow Jones-UBS Commodity Index (GBP) / 11% DJ Credit Suisse Hedge Fund Index (GBP) / 3% IPD All
Property Index - United Kingdom in GBP / 4% Bank Of England Base Rate -1% (Floating Rate)
Dynamic: UK CPI + 2%
36
Barclays GlobalAccess Equity Funds - As at 31 March 2014
Inception
Date
3 year
return
(p.a. %)
3 month
return (%)
1 year
return (%)
Net
BM
Net
BM
Net
2013 return
(%)
2012 return
(%)
2011 return
(%)
2010 return
(%)
2009
return (%)
BM
Net
BM
Net
BM
Net
BM
Net
BM
Net
BM
UK Alpha
01/10/2004
0.1
-0.6
18.6
8.8
13.7
8.8
29.1
20.4
21.4
12.9
-5.7
-3.6
18.1
15.7
30.1
29.8
UK Opportunities
01/10/2004
0.3
-0.6
15.2
8.8
13.6
8.8
29.4
20.4
18.6
12.9
-4.8
-3.6
15.3
15.7
27.3
29.8
US Small & Mid Cap
01/07/2011
0.8
2.3
25.0
24.0
38.8
39.4
12.2
15.2
US Value
19/12/2011
2.5
2.8
20.9
20.7
31.2
33.7
12.9
14.2
Europe (ex-UK)
Opportunities
01/10/2004
4.3
3.5
24.2
19.7
10.6
9.0
25.3
22.4
24.6
20.3
-15.9
-13.3
12.0
9.1
30.4
28.4
Pacific Rim (ex-Japan)
01/10/2004
3.1
1.0
-1.5
2.4
1.5
1.8
-2.2
3.3
24.3
22.7
-15.7
-15.9
23.8
17.8
73.0
70.9
Emerging Market Equity
30/10/2007
-1.4
-0.4
-4.6
-1.4
-1.6
-2.9
-3.8
-2.6
20.7
18.5
-14.2
-18.6
24.1
18.3
78.4
76.5
Japan
01/10/2004
-5.7
-6.7
16.1
18.6
13.6
13.8
53.1
54.4
18.9
21.1
-16.6
-17.7
3.7
1.0
20.5
7.6
Global Equity Income
29/12/2011
1.6
1.3
12.8
19.1
18.2
27.8
14.4
15.3
Global Property Securities
16/12/2009
3.7
3.8
2.1
1.4
1.2
3.7
24.4
27.6
-7.8
-6.7
16.6
19.4
Info
Source: Barclays, Factset, Lipper. Net income reinvested: GlobalAccess Dublin Equity Funds (M Distribution share class) except US Value
(M Accumulation)
5.7
7.7
BM: Benchmark, details are shown below
Net: the returns shown for GlobalAccess Equity Funds are net of annual fees
Benchmarks
BM: gross benchmark return for funds are as follows: UK Alpha: FTSE All-Share / UK Opportunities: FTSE All-Share / US Small & Mid
Cap: Russell 2500 Index / US Value: Russell 1000 Value Index / Europe (ex-UK) Alpha: MSCI Europe Ex UK / Japan: TOPIX / Pacific Rim
(ex-Japan): MSCI AC Asia Pacific Ex Japan / Emerging Market Equity: MSCI Emerging Markets USD / Global Equity Income: MSCI World
/ Global Property Securities: FTSE EPRA/NAREIT Developed TR
Barclays GlobalAccess Fixed Income Funds - As at 31 March 2014
Inception
Date
3 year
return
(p.a. %)
3 month
return (%)
1 year
return (%)
Net
BM
Net
BM
Net
4.2
2013 return
(%)
2012 return
(%)
2011 return
(%)
2010 return
(%)
2009
return (%)
BM
Net
BM
Net
BM
Net
BM
Net
BM
Net
BM
4.2
-1.2
0.1
5.9
4.6
5.8
5.5
4.6
3.5
4.6
1.1
-0.4
0.8
2.3
1.4
Global Government
Bond*
01/10/2004
1.8
2.0
0.1
1.2
Global Short Duration
Bond
27/07/2011
0.6
0.3
0.0
0.8
Emerging Market Debt
03/12/2007
3.4
3.7
0.9
0.6
6.5
7.1
-5.0
-5.2
19.1
17.5
5.7
7.3
12.0
12.2
34.2
29.8
Global Inflation Linked
Bond
03/12/2007
2.6
2.4
-6.9
-4.9
4.1
3.9
-7.4
-5.5
7.6
5.8
13.3
11.7
6.9
5.0
8.9
8.7
Global High Yield Bond
27/11/2007
3.2
3.0
8.5
7.5
8.8
8.7
7.3
7.4
18.1
15.6
4.6
4.3
16.9
14.9
65.6
57.9
Global Corporate Bond
03/12/2007
2.3
2.6
1.8
2.3
5.9
5.9
-0.6
-0.1
14.6
11.2
3.7
4.7
8.9
6.9
22.1
16.7
Source: Barclays, Factset, Lipper. Net income reinvested: GlobalAccess Dublin Fixed Income Funds (M Distribution share class) except
Global Short Duration Bond (M Accumulation)
Info
BM: Benchmark, details are shown below
Net: the returns shown for GlobalAccess Fixed Income Funds are net of annual fees
* Note: Global High Grade Bond Fund was renamed Global Government Bond Fund in October 2011
Net: the returns shown for GlobalAccess Fixed Income Funds are net of annual fees
Benchmarks
BM: gross benchmark return for funds are as follows: Global Government Bond: Barclays Global Treasury USD / Global Corporate Bond:
Barclays Global Credit - Corporate Hedged / Global High Yield Bond: Merrill US High Yield / Emerging Market Debt: JP Morgan EMBI
Global Diversified / Global Inflation Linked Bond: Barclays World Inflation Linked (USD Hedged) / Global Short Duration Bond: Barclays
Global Treasury 1-3 Yr
37
Barclays GlobalBeta Portfolios - As at 31 March 2014
Inception
Date
3 month
return (%)
Year to
Date (%)
3 year
return
(p.a.%)
2013
return (%)
2012 return
(%)
2011 return
(%)
2010 return
(%)
2009
return (%)
Net
MI
Net
MI
Net
MI
Net
MI
Net
MI
Net
MI
Net
MI
Net
MI
Barclays GlobalBeta Portfolios
GlobalBeta Portfolio 1
01/05/2009
0.7
1.0
0.7
1.0
2.2
4.2
3.1
5.2
4.3
5.6
-0.3
1.3
4.9
4.5
GlobalBeta Portfolio 2
01/01/2009
0.9
1.2
0.9
1.2
3.1
6.0
5.9
9.9
7.6
8.7
-3.1
-0.1
6.5
6.5
14.4
13.9
GlobalBeta Portfolio 3
01/10/2008
0.9
1.3
0.9
1.3
3.8
7.3
8.8
13.5
9.9
10.9
-5.2
-1.3
8.2
7.9
19.5
17.9
GlobalBeta Portfolio 4
01/10/2008
0.7
1.1
0.7
1.1
4.1
8.5
11.3
18.7
10.9
13.2
-6.8
-3.6
8.6
9.2
25.2
22.9
GlobalBeta Portfolio 5
01/09/2009
0.6
1.0
0.6
1.0
4.3
9.0
12.1
21.4
10.5
14.1
-7.5
-4.8
7.7
9.6
GlobalBeta Equity
01/04/2011
0.2
0.8
0.2
0.8
5.7
9.5
17.7
24.2
13.7
15.1
Info
Source: Barclays, Factset, Lipper. Net income reinvested: Barclays GlobalBeta 1 - 5 (D Accumulative GBP share class) / GlobalBeta
Equity &GlobalMarkets (B Accumulative GBP share class).
MI: Market Index, details are shown below
Net: the returns shown are net of annual fees
MI: Market Index definitions: Cash = LIBOR GBP 3 Months / Short-Maturity Bonds = Barclays Global Treasury 1-3 Year / Global Investment Grade Bonds = Barclays Global Aggregate / Equities = MSCI All Country World
GlobalBeta/GlobalMarkets Portfolio 1 Market Index: 10% Cash / 40% Short-Maturity Bonds / 30% Global Investment Grade Bonds/
20% Equities
GlobalBeta/GlobalMarkets Portfolio 2 Market Index: 10% Cash / 15% Short-Maturity Bonds / 35% Global Investment Grade Bonds/
40% Equities Benchmarks
GlobalBeta/GlobalMarkets Portfolio 3 Market Index: 10% Cash / 35% Global Investment Grade Bonds / 55% Equities GlobalBeta/Globalmarkets Portfolio 4 Market Index: 5% Cash / 20% Global Investment Grade Bonds / 75% Equities GlobalBeta/GlobalMarkets Portfolio 5 Market Index: 5% Cash / 10% Global Investment Grade Bonds / 85% Equities As of this update, performance of GlobalBeta is compared to a Market Index, comprised of different mixes of Cash, Short-Maturity
Bonds,
Global Investment Grade Bonds and Global Equities. The mixes are statistically optimised to correspond to varying risk profiles. This
Market Index replaces the past reference to a basket of sub-asset classes that, in combination, matched the specific weightings of the
overall asset classes within GlobalBeta.
38
Disclaimers
Value Of Investments - The value of investments, and any income can fall, as well as rise, so you could get back less than you
invested. Neither capital nor income is guaranteed.
Derivative Exposure - Some funds invest in derivatives as part of their investment strategy, over and above their use for Efficient
Portfolio Management (EPM). Investors should be aware that the use of these instruments can, under certain circumstances,
increase the volatility and risk profile beyond that expected of a fund that only invests in equities. Funds may also be exposed to
the risk that the company issuing the derivative may not honour their obligations which in turn could lead to losses arising.
39
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Item Ref: IBIM2981 April 2014