October, 2020
FUND REVIEW
+ In October, the Fund outperformed its benchmark. Overall sector allocation contributed. Exposure to investment-grade credit contributed. While spreads rose in September, markets recouped this underperformed in the first half of October. An allocation to US high-yield credit was positive, as these bonds benefited from investors’ search for yield. + Exposure to hard-currency emerging-market (EM) debt contributed, as demand for high-quality EM debt assets remains robust, illustrated by the continued strong momentum in hardcurrency flows.
+ US commercial mortgage-backed securities (CMBS) further added to performance, as securitized assets had an overall positive month with US CMBS benefiting from a decline in delinquencies. + Country/yield-curve positioning detracted from performance. The yield curve steepened, which hurt performance, as we prefer longer-dated bonds
+ Currency decisions had a neutral impact on performance. Our short positions in the US dollar and British pound detracted. This was offset by our long positions in the South Korean won and Singapore dollar.
FUND STRATEGY
+ As monetary policy anchors intermediate rates, longer-dated safe-haven bonds provide a better credit hedge. We maintained our exposure to 20-year US Treasury inflation-protected securities based on our expectation for inflation expectations to increase.
+ Over the month, we maintained the overall balance of our Fund risk. Within our investment-grade corporate credit exposure, our allocation is mostly balanced between the US and Europe in BBB-rated bonds. Our recent strategy has focused on rotating into higher-quality, longer-maturity corporates that are expected to be more resilient at this point in the credit cycle, while the steepness of the credit curves makes these holdings attractive. We continue to take profits on names that recovered from the initial market sell-off. At a margin, we continue to prefer eurozone credit opportunities that should continue to benefit from the ECB’s significant Pandemic Emergency Purchases Programme (PEPP) bond purchases relative to the Fed’s program. Within high yield, we slightly increased our exposure, adding to BBrated names within the utility and automotive industries. Over the month, we slightly increased our exposure to credit risk-transfer securities (CRTs) while we reduced our allocation to CMBS. + Our currency positioning remains dynamic and focuses mostly on the relative value between currency pairs. Our current strategy continues to focus on relative European currency strength, fueled by a convergence of monetary policy regimes after years of US monetary policy exceptionalism supporting the US dollar. Furthermore, we believe that the euro is set to appreciate against the sterling, as the UK’s relative economic prospects are darkened by both Brexit and its handling of the pandemic crisis
August, 2020
FUND REVIEW
+ In August, the Fund delivered positive returns and outperformed its benchmark. Sector/security selection drove the relative outperformance. This was helped most by our allocations to investment-grade corporates in the US, eurozone and UK amid the continuously constructive risk tone. Exposure to US credit risk–transfer securities (CRTs) also contributed as CRTs recovered from their July declines. An allocation to US commercial mortgage-backed securities (CMBS) also contributed. Further adding to returns were our allocations to high-yield corporates—especially subordinated European bank debt and emerging-market (EM) sovereigns.
+ Currency positioning was additive as we captured the US dollar weakness and European currency strength across a number of position themes. These included the initiation of a structural shift toward a long euro allocation.
+ Country/yield-curve positioning detracted, primarily driven by our yield-curve positioning in the US and Australia—due to our exposure in the long end of the curves as yields rose and curves steepened. Local Chinese duration also hampered returns as Chinese front-end rates underperformed most global peers during the month.
FUND STRATEGY
+ Overall Fund duration was increased, trending 0.1 years higher over the month. Within US dollar–denominated duration, we reduced our overall long duration position. Specifically, we closed our long position to the five-year part of the curve and reduced our long in the 10-year part of the curve.
+ The Fund continues to be long credit risk, mostly balanced between the US and Europe in BBB-rated investment-grade bonds. Our strategy continues to focus on taking profits on industries and issuers that have tightened strongly and rotating the risk into industries that have lagged the rally where spreads remain elevated amid the cyclical outlook and direct impact from the lockdown measures.
+ Over the month, we reduced exposure to consumer non-cyclicals and media, while we added exposure to renewable energy to the Fund. We also slightly reduced our position within banking. + Our currency positioning remains dynamic and focuses mostly on the relative value between currency pairs. The improved fiscal cohesion and narrowing interest-rate differentials support our view that the euro has embarked on a structural appreciation trend. Therefore, the Fund shows a current bias toward European currencies compared to the US dollar and British pound. Over the month, we increased our long in the euro and maintained our long Swedish krona position. We also initiated a new long in the Norwegian krone. We closed short positions in the New Zealand dollar and the yen. In Japan, we believe the risk for the yen to appreciate has risen until there is clarity on the replacement for Prime Minister Abe.
ticker: ACM0001AU
commentary_block: Array
factsheet_url:
https://web.alliancebernstein.com/APAC/investments/au/funds/rsb/DG/Monthly%20Fact%20Sheet.pdf
asset_class: Fixed Income
asset_category: Multi-Strategy Income
peer_benchmark: Fixed Income - Multi-Strat Income Index
broad_market_index: Global Aggregate Hdg Index
structure: Managed Fund