globeandmail.com

Leading bond fund helped by emerging market debt

Monday, October 29, 2012

SHIRLEY WON

swon@globeandmail.com

What are we looking for?

How investors have fared in their global search for yield.

At a time of paltry interest rates, let's see how managers of global fixed income funds have performed.

The screen

We examined the eight best and worst performers among global fixed income funds for the three years ended Sept. 30. U.S. dollar, segregated, pooled and duplicate versions of the funds were excluded, as well as those sold as part of a portfolio of funds.

What did we find?

The leader was helped by a splash of emerging markets debt.

RBC Global Corporate Bond fund, which invests in both investment grade and high yield debt, posted an annualized return of 6.9 per cent over three years. Its sibling RBC Global Bond, which invests mainly in sovereign bonds and is also among the top performers, averaged 4 per cent.

It's not surprising that the corporate bond fund led the pack. The 2008 credit crisis wreaked havoc on company bonds. In the aftermath of the crisis, the bonds benefited from the tailwinds of higher yields and shrinking credit spreads relative to developed country debt such as U.S. Treasuries.

RBC's global corporate fund is 10 per cent invested in the sovereign and corporate debt of developing countries. The quality of emerging market debt has improved, and so this area, along with high yield bonds, has helped the fund's returns in 2012, said Frank Gambino of RBC Global Asset Management and lead manager on the fund.

Even though the fund gained 7.4 per cent for the first nine months of this year, the performance could have been even better had it not been positioned defensively because of concerns about the European debt crisis and slowing growth, he said.

Its strong performance of recent years is going to be hard to replicate because corporate and emerging market bond yields have fallen, he said. Still, he noted, the key for the investor is not to focus on absolute returns, but rather relative returns versus Canadian, U.S. or even German government debt. "We think that owning [corporate or emerging market bonds] still makes sense, and you can still add value versus developed government bonds."

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LEADERS AND LAGGARDS AMONG GLOBAL FIXED INCOME FUNDS FOR 3 YEARS TO SEPT. 30

Assetsto Sept. 30/12
FundMER(in $ mil.)3 yrs.1 yr.YTD2011201020092008
Leaders
RBC Global Corporate Bond1.731,006.86.94%9.77%7.41%6.21%6.78%12.67%0.61%
CIBC Global Bond2.07110.05.78%2.27%4.72%9.03%6.20%1.75%12.10%
DFA Investmt. Grade Fixed Income-A1.5537.55.72%5.72%3.97%7.89%6.04%
Manulife Canadian Bond Plus Fund2.06205.15.56%4.85%3.09%6.41%6.80%10.47%-1.61%
Renaissance Global Bond2.01119.35.11%2.01%4.44%8.67%4.57%0.46%9.94%
Tmpltn Global Bond2.16389.94.35%3.50%4.82%0.56%8.28%4.00%24.06%
Fidelity Global Bond Currency Ntr-A1.873.44.18%5.08%3.64%4.26%4.29%9.31%-3.20%
RBC Global Bond1.762,172.64.02%5.03%4.63%4.50%2.96%3.44%5.06%
Laggards
Altamira Global Bond1.80177.70.34%-4.33%-1.09%8.20%-0.53%-13.61%32.47%
Investors Global Bond2.29239.30.40%-2.44%0.72%4.50%-1.36%-7.05%17.36%
Fidelity Global Bond-A1.876.60.51%-2.54%-0.23%6.26%-1.69%-3.79%18.54%
Mackenzie Sentinel Global Bond2.21145.00.95%2.32%3.63%1.47%-0.15%6.29%5.05%
CIBC Global Bond Index1.1438.51.00%-3.89%-0.61%8.44%-0.02%-14.44%37.53%
TD Global Bond-I2.26142.41.64%-2.28%0.22%7.65%0.20%-3.12%27.46%
Scotia Global Bond2.1018.81.71%-3.89%-1.10%10.25%1.24%-14.91%37.23%
Signature Global Bond2.1445.11.83%0.80%2.48%4.69%0.77%-8.19%33.75%
Barclays Capital Aggregate Bond6.19%5.16%3.99%7.84%6.55%5.93%5.24%
Citigroup World Gov't Bond Index (Hedged)0.65%-1.26%-0.37%7.75%-2.23%-12.36%35.50%
Source: Lipper