Bond, Income & Defensive Strategies

The Bond, Income & Defensive Strategies (BIDS) boutique offers a diverse range of funds that run the spectrum from cash at one end, to absolute return style strategies at the other. To better reflect the broader scope of the team’s capabilities, the name of the boutique was changed from Income & Fixed Interest during the year. In addition to the widening range of investment strategies, the team also added two new investment team members that extended the existing expertise further.

In December 2018, the Active Long Volatility Strategy (ALVS) was launched. The fund was designed to capture rising volatility across FX, equities and commodities following a systematic approach. The returns from the fund are independent of the performance of a traditional asset class and provide a negative correlation to equities. This has been a key attribute desirable among institutional investors and a growing area of interest in the broader market. At present, the strategy forms part of a large mandate and also functions as a component of several Pendal diversified funds.

After the launch of the new strategy an additional portfolio analyst was brought on in order to assist the broader team. Ronnie Thomas joined in March 2019 to support daily trade implementations, trade risk monitoring and performance reporting. Meanwhile, the portfolio managers continued their specialisation in certain geographic regions or categories of fixed interest. As Head of BIDS, Vimal Gor maintained leadership over the team and the management of overall portfolio risk. He also continued to play a vital role in new strategy development and implementation.

The boutique maintained its core process that utilises a quantitative backbone with a qualitative overlay. Throughout the year new models were added and the inputs on existing models were further refined. Moreover, the team invested further in its quantitative research with the addition of a dedicated machine learning analyst. Itay Feldman brings extensive experience in data analysis and will assist in attaining deeper insights from market data.

In addition to the strength of the team’s quantitative analysis, its defensive approach to managing fixed interest strategies remains a key differentiator. This was also a significant benefit to performance during calendar year 2019 to the end of August. The flagship funds were well-positioned to benefit from the significant rally in global bonds. This included the Pendal Fixed Interest Fund and Pure Alpha Fixed Income Fund. However, underperformance during Q4 2018 was responsible for a negative active return for the one-year period.

The bond rally and fall in underlying yields was the largest driver of the outperformance for the boutique’s income funds. Monthly Income Plus increased its exposure to government bonds and equities over the year, which contributed positively. Similarly, the Dynamic Income Fund benefited from its domestic bond exposure, while the emerging markets allocation was a small negative for performance. The overall strong return within the low yielding environment remained well-received by investors and the strategy enjoyed further growth in FUM. Going forward, with the cash rate in Australia at record lows, we expect the fund will continue to grow as more investors seek higher income products.

Another area of growing interest has been investing that incorporates Environmental, Social and Governance (ESG) factors. It continues to be a key area of focus for the boutique and the broader business. This was reflected by Pendal’s complete acquisition of Regnan – a leading provider of ESG research. The team also deepened its own ESG research and engagement with issuers. This research has been used as part of the investment process for the Sustainable Australian Fixed Interest Fund, which has an active tilt of 40 per cent to dedicated green, social and sustainable bonds as well as sustainable screens on the remaining portion.

Before end of calendar year 2019, the boutique will be launching a new ESG-aligned strategy named the Credit Impact Fund that will comprise purely of impact bonds (with a small cash allocation). The investment process will emphasise the impact of holdings on environmental and social outcomes. These are typically aligned to the UN’s Sustainable Development Goals with examples of definable measures; including carbon emissions reduced, water usage saved, and affordable housing provided.

Overall, it was another strong year for the boutique with the flagship strategies delivering on client expectations. Additionally, the team continued to broaden its capabilities while also enhancing its existing strategies. Going forward, we believe the economic environment will continue to benefit the positioning and demand for our products. We also continue to put our clients’ needs first and further invest in areas that will best serve those needs.

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Bloomberg AusBond Composite (0+Yr) Index

Fund Fact Sheets

Fund Name Fund Fact Sheet
Pendal Fixed Interest Fund View the latest fact sheet
Pendal Monthly Income Plus Fund View the latest fact sheet
Pendal Pure Alpha Fixed Income Fund View the latest fact sheet
Pendal Enhanced Cash Fund View the latest fact sheet
Pendal Managed Cash Fund View the latest fact sheet
Pendal Active Long Volatility Fund