Urvesh is a portfolio manager and strategist at MacroSolutions, with his primary focus being the Global capabilities and the Conservative Balanced Fund capabilities. In addition, he contributes to MacroSolutions’ overall investment strategy.
Urvesh has been with MacroSolutions since the inception of the boutique. He previously jointly managed the Namibian multi-asset class portfolios. Prior to joining Old Mutual Investment Group, Urvesh performed various actuarial functions within Old Mutual Life Assurance Company of South Africa.
Old Mutual Global Bond Feeder comment - Sept 18
Namibian risk sentiment improved in September as markets shrugged off concerns about the impact of the ongoing tightening in global liquidity conditions, higher oil prices and protectionist rhetoric. As widely anticipated, the US Federal Reserve (Fed) raised rates by 25 basis points (bps) to 2.25%, with the committee omitting a long-standing reference to 'accommodative' monetary policy, whilst also nudging up its median forecast for the fed funds rate to 3% (from 2.9%). Meanwhile, the Brent crude oil price rose to US$82.7 per barrel, its highest level since late 2014 given declining oil inventories and Iran sanction concerns. Along with cyclical economic growth dynamics, which still favour US outperformance versus the rest of the world, 10-year US Treasury yields rose 20bps during the month, ending at 3.06%. Elsewhere, the Bank of Japan surprised the market by trimming its purchases of long-dated bonds, pushing 20-year JGB yields to 0.66%, their highest levels since early 2017. The Norwegian central bank also hiked interest rates for the first time in seven years, taking the Norwegian policy rate to 0.75% (from 0.5%).
The European Central Bank (ECB)’s tone turned a little less dovish in September, with President Draghi stating that the Euro area was beginning to see a 'relatively vigorous' pick-up in inflation. Despite this, Euro area core CPI inflation actually surprised on the downside, rising just 0.9% year on year (y/y), well below the ECB’s inflation target. Towards month-end, concerns about the Italian fiscal trajectory also re-surfaced. The Italian government signalled a more stimulatory fiscal stance for 2019 - a budget deficit of 2.4% of GDP - at the higher end of market expectations. Italian government yields rose across the curve; 10-year Italian/Bund spreads widened to 268bps, having been as low as 231bps in the middle of the month. The euro weakened into month-end, ending September at 1.161.
In the UK, a combination of firmer than expected CPI inflation data and continued Brexit uncertainty resulted in further GBP currency volatility, with GBP advancing to an intra-month high of 1.3245 versus the US dollar, before ending the month at 1.304. Headline and core CPI rose to 2.7% y/y and 2.1% y/y, respectively. However, the key uncertainty for markets is whether or not the UK agrees a deal with the EU over the coming months. Both have an interest in a deal with minimal disruptions, but the risk is that we get closer to the cliff edge before a final agreement. 10-year Gilt yields ended September at 1.57%, their highest levels since early 2018.
- We increased the underweight headline duration position of the portfolio by selling long-dated Japanese government bonds at the start of September. The portfolio continues to have a German yield curve flattening bias and is overweight to 10-year US Treasuries versus both Germany and the UK. The portfolio remains overweight to a basket of emerging market external debt.
- We started to selectively add exposure to emerging market currencies tactically, namely the Mexican peso versus the Japanese yen, before booking profits intra-month. We also started to scale into a structural AUD FX underweight versus USD whilst we closed out the long USD versus JPY position. Going into October, we maintain a long IDR versus USD FX position.
- We reduced our investment grade credit exposure to remain modestly overweight and retain a preference for financials and US utilities. We maintain a modest preference for USD and EUR credit versus GBP issuance. We have an allocation to our selective high-yield fund and a modest underweight to longerdated bonds.
The fund holds a portfolio of interest-bearing investments selected from bond markets across the world. This fund invests at least 80% of its assets (subject to regulatory and other forex constraints) in the Old Mutual Global Aggregate Bond Fund. A maximum of 20% is invested locally in the Old Mutual Money Market Fund.
This fund is suited to astute investors who have a particular view on the performance of global bonds relative to other asset classes. The investor understands the impact of currency and interest rate
cycles and accepts this risk in exchange for moderate long-term growth potential.
This is a moderately conservative risk fund (risk rating 2). It is exposed to interest rate fluctuations. When rates fall/rise, the bonds held by the fund will increase/decrease in value. Long term bonds are more sensitive to rate changes, while short term bonds experience more modest price movements. The holding of long and short dated stock in the fund is used to reduce these risks. Your investment is exposed to fluctuations in the value of the rand versus other currencies. This can add to or diminish growth that local investors receive.