In February of this year, the ASX200 plunged by -7.7%. As a clear demonstration of the protection global high-grade sovereign bonds aim to provide, the CC JCB Global Bond Fund (Unhedged) gained +5.4%* (after fees) during the month. High-grade bonds also provide a fantastic negative correlator to help offset riskier asset holdings in portfolios. For the year ending February, the Fund generated returns of 21% (Unhedged) and 11% (Hedged)**.
During periods of market turbulence like these, it is critical to get the balance right between risk and return. In this short video, Charlie Jamieson, CIO at Jamieson Coote Bonds spells out the huge risks - and opportunity - that investors face today. Talking about how credit markets are ‘seizing up’, Charlie said:
"It's been 10 years since we saw this kind of stuff. Clearly, at the end, there can be a fantastic opportunity, but you've got to get through with a reasonable balance sheet in order to be able to fully capitalise on it".
Watch (or read) below to hear how things could get much worse before they get better, and why now is the time to get the balance right in your portfolio.
You can reduce risk without giving up too much return
During periods of market turbulence, global high-grade sovereign bonds can help offset riskier assets, helping to get the balance right between risk and return. Find out more here
Hi, I'm Charlie Jamieson, Chief Investment Officer at Jamieson Coote Bonds, and I wanted to take a moment to talk about how now is the time to defend portfolios.
Clearly, the evolution of the news flow in 2020 coming on the back of what's already been a challenging 2019 in a macro context is tremendously important, and it could be a very serious moment, a big secular shift in the way that economies and markets are going to go looking forward.
We simply don't know how bad that coronavirus and the credit impact of that might be, but clearly, now is a time where you must consider defensive asset classes and how you might navigate some of the volatility, which will surely come with this episode.
We harbour great fears that this can trigger a material credit problem via a corporate cashflow crisis. We're going to see that the world over, we know that many corporates are already sailing fairly close to the wind after having a fairly challenging 2019 trading environment at the hand of material trade war escalation. Now, with a huge supply stoppage, which could be coupled with material demand destruction, it's very likely that we see some material problems.
We're already seeing very low-quality credit starting to widen quite quickly. The credit markets for all intents and purposes as I film this are closed for business. There is very little new primary issuance, and these are markets that are global bond markets three times the size of global equity markets. They are absolutely the financial oil that plumbs the entire system. If it's not flowing, the machine starts to lock up, and that is something that really we do fear quite materially as we look out over 2020.
It's certainly a time to give great consideration to asset quality in portfolios. It doesn't mean you need to make wholesale changes, but it is absolutely the time to think through deeply the correlations of your asset holdings and how they might perform in a challenged environment. Certainly, where liquidity can be a very, very thin at times.
For credit at the moment, simply, it is not functioning. There is no secondary market trading really going on. Primary is essentially closed. We need to think through deeply what this looks like. It's been 10 years since we saw this kind of stuff lock up.
Clearly, at the end of that, there can be fantastic opportunity, but you've got to get through that with a reasonable balance sheet in order to be able to fully capitalise on that.
So we think now is the time to really think through what you could maybe add to portfolios to get you to that place and help smooth out that journey.
We would really love to bring investors attention to our global funds offered in both a hedged and unhedged format around the US dollar back to Aussie dollars, can provide incredible left tail protection as we're already seeing.
This thing can run, and run, and run as we saw in the GFC, unhedged allocations to global bonds - incredibly powerful portfolio returns, which give or gave investors exceptional optionality and liquidity at the end of that time with a very large ammunition storage to go and consume their favourite growth assets at much more attractive levels.
So now is the time to really consider how can you take advantage of what might come.
Clearly, there are a lot of opportunities available to investors. There's a lot more fund offerings, and we think it's a fantastic time to be considering those. We would certainly love to talk to you about what we offer as a truly defensive and protective alternative with regard to high-quality government bonds. Thank you very much.
Strengthen your portfolio with global high grade bonds
In the late stages of this economic cycle, adding high grade bonds to your portfolio alongside other risky assets can help offset and get the balance right between risk and return – this is absolutely crucial now as investors seek higher income.. Find out more here
*Performance is for the CC JCB Global Bond Fund (Unhedged) - APIR: CHN1425AU, and is based on month end unit prices before tax in Australian Dollars. Net performance is calculated after management fees and operating costs, excluding taxation. This is historical performance data. It should be noted the value of an investment can rise and fall and past performance is not indicative of future performance.
**Performance is for the CC JCB Global Bond Fund (Hedged) - APIR: CHN4711AU, and is based on month end unit prices before tax in Australian Dollars. Net performance is calculated after management fees and operating costs, excluding taxation. This is historical performance data. It should be noted the value of an investment can rise and fall and past performance is not indicative of future performance.
This information is provided by
JamiesonCooteBonds Pty Ltd ACN 165 890 282 AFSL 459018 (‘JCB’). Past
performance is not a reliable indicator of future performance. This information
should not be considered advice or a recommendation to investors or potential
investors in relation to holding, purchasing or selling units and does not take
into account your particular investment objectives, financial situation or
needs. Before acting on any information you should consider the appropriateness
of the information having regard to these matters, any relevant offer document
and in particular, you should seek independent financial advice
Excellent. Thank you