The UK’s biggest bond mutual fund is shifting money to the other side of the Atlantic as the interest-rate gap between Europe and the US widens to record levels.
M&G Limited has boosted US holdings in its £23.4 billion (Dh116.66bn) Optimal Income Fund this year to more than a third at the expense of positions in French, Italian and Spanish bonds. To cushion inflation risks and the impact of rising US rates, it’s gorging on short-term Treasury bills and paring credit risk.
“If you look at the relationship between the front end in Europe and the front end in the US, we’re multi-year wide,” said M&G portfolio manager Stefan Isaacs. “The front end of the US curve looks like good value to us. You’re getting a positive real yield there.”
The M&G Optimal Income fund, which Mr Isaacs helps oversee with lead manager Richard Woolnough, is the biggest actively-managed open-end bond fund domiciled in the UK, according to data compiled by Bloomberg.
The allocation shift underscores overseas demand for US securities, despite elevated currency-hedging costs, with short-dated yields higher than inflation, effectively for the first time since the crisis.
Bond investors cut exposure to all regions outside the US in the week ending May 2, according to EPFR Global data, while exchange-traded funds that track US government bonds have attracted more than $17bn so far this year.
M&G is striking a different note to Pacific Investment Management bond investor Andrew Bosomworth, who suggests shunning 10-year Treasuries in favour of Italian, Danish and Swedish debt, citing dollar-hedging expenses for money managers in Europe. Pimco estimated last month that the cost for euro investors could rise closer to 4 per cent next year from just below 3 per cent.
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Mr Isaacs said that while the high price of offsetting dollar exposure had put the fund off Treasuries over the past few months, the recent selloff has pushed yields on short-dated bonds to levels that outweigh that cost.
As the US Treasury curve flattens to 2007 levels, Mr Isaacs’ strategy is defensive. The paring of the Federal Reserve’s balance sheet and "relatively robust" economic data raise the prospect of a slow but sure rise in long-dated US bond yields. As such, the M&G Optimal Income fund has a modest duration - a measure of the sensitivity of bond prices to changes in interest rates - at just 2.4 years.
The firm took profits on European bonds earlier this year after spreads narrowed versus Germany, while cutting exposures to high-yield debt. The fund’s flexible mandate allows it to take a position in equities, which now stands at 5 per cent, said Mr Isaacs.
While the fund is sitting on a loss of 0.2 per cent so far this year, it outperformed more than 80 per cent of peers over the past two, according to data compiled by Bloomberg.
“The trade has been out of the riskiest end of US credit markets into the front end of the least-risky part of the market,” Mr Isaacs said.
“Why take the additional risk when you can earn the vast majority of that income at the front end of the market?”
SPECS
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The rules on fostering in the UAE
A foster couple or family must:
- be Muslim, Emirati and be residing in the UAE
- not be younger than 25 years old
- not have been convicted of offences or crimes involving moral turpitude
- be free of infectious diseases or psychological and mental disorders
- have the ability to support its members and the foster child financially
- undertake to treat and raise the child in a proper manner and take care of his or her health and well-being
- A single, divorced or widowed Muslim Emirati female, residing in the UAE may apply to foster a child if she is at least 30 years old and able to support the child financially
'How To Build A Boat'
Jonathan Gornall, Simon & Schuster
MATCH INFO
Euro 2020 qualifier
Fixture: Liechtenstein v Italy, Tuesday, 10.45pm (UAE)
TV: Match is shown on BeIN Sports
Company%20profile
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Ms Yang's top tips for parents new to the UAE
- Join parent networks
- Look beyond school fees
- Keep an open mind
NO OTHER LAND
Director: Basel Adra, Yuval Abraham, Rachel Szor, Hamdan Ballal
Stars: Basel Adra, Yuval Abraham
Rating: 3.5/5
COMPANY%20PROFILE
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Brief scoreline:
Manchester United 2
Rashford 28', Martial 72'
Watford 1
Doucoure 90'
UAE currency: the story behind the money in your pockets
Specs
Engine: Electric motor generating 54.2kWh (Cooper SE and Aceman SE), 64.6kW (Countryman All4 SE)
Power: 218hp (Cooper and Aceman), 313hp (Countryman)
Torque: 330Nm (Cooper and Aceman), 494Nm (Countryman)
On sale: Now
Price: From Dh158,000 (Cooper), Dh168,000 (Aceman), Dh190,000 (Countryman)
The specs
Engine: 1.5-litre turbo
Power: 181hp
Torque: 230Nm
Transmission: 6-speed automatic
Starting price: Dh79,000
On sale: Now
The Indoor Cricket World Cup
When: September 16-23
Where: Insportz, Dubai
Indoor cricket World Cup:
Insportz, Dubai, September 16-23
UAE fixtures:
Men
Saturday, September 16 – 1.45pm, v New Zealand
Sunday, September 17 – 10.30am, v Australia; 3.45pm, v South Africa
Monday, September 18 – 2pm, v England; 7.15pm, v India
Tuesday, September 19 – 12.15pm, v Singapore; 5.30pm, v Sri Lanka
Thursday, September 21 – 2pm v Malaysia
Friday, September 22 – 3.30pm, semi-final
Saturday, September 23 – 3pm, grand final
Women
Saturday, September 16 – 5.15pm, v Australia
Sunday, September 17 – 2pm, v South Africa; 7.15pm, v New Zealand
Monday, September 18 – 5.30pm, v England
Tuesday, September 19 – 10.30am, v New Zealand; 3.45pm, v South Africa
Thursday, September 21 – 12.15pm, v Australia
Friday, September 22 – 1.30pm, semi-final
Saturday, September 23 – 1pm, grand final
LA LIGA FIXTURES
Friday (UAE kick-off times)
Real Sociedad v Leganes (midnight)
Saturday
Alaves v Real Valladolid (4pm)
Valencia v Granada (7pm)
Eibar v Real Madrid (9.30pm)
Barcelona v Celta Vigo (midnight)
Sunday
Real Mallorca v Villarreal (3pm)
Athletic Bilbao v Levante (5pm)
Atletico Madrid v Espanyol (7pm)
Getafe v Osasuna (9.30pm)
Real Betis v Sevilla (midnight)
Fixtures and results:
Wed, Aug 29:
- Malaysia bt Hong Kong by 3 wickets
- Oman bt Nepal by 7 wickets
- UAE bt Singapore by 215 runs
Thu, Aug 30: UAE v Nepal; Hong Kong v Singapore; Malaysia v Oman
Sat, Sep 1: UAE v Hong Kong; Oman v Singapore; Malaysia v Nepal
Sun, Sep 2: Hong Kong v Oman; Malaysia v UAE; Nepal v Singapore
Tue, Sep 4: Malaysia v Singapore; UAE v Oman; Nepal v Hong Kong
Thu, Sep 6: Final
In Search of Mary Shelley: The Girl Who Wrote Frankenstein
By Fiona Sampson
Profile
Skewed figures
In the village of Mevagissey in southwest England the housing stock has doubled in the last century while the number of residents is half the historic high. The village's Neighbourhood Development Plan states that 26% of homes are holiday retreats. Prices are high, averaging around £300,000, £50,000 more than the Cornish average of £250,000. The local average wage is £15,458.
What is an FTO Designation?
FTO designations impose immigration restrictions on members of the organisation simply by virtue of their membership and triggers a criminal prohibition on knowingly providing material support or resources to the designated organisation as well as asset freezes.
It is a crime for a person in the United States or subject to the jurisdiction of the United States to knowingly provide “material support or resources” to or receive military-type training from or on behalf of a designated FTO.
Representatives and members of a designated FTO, if they are aliens, are inadmissible to and, in certain circumstances removable from, the United States.
Except as authorised by the Secretary of the Treasury, any US financial institution that becomes aware that it has possession of or control over funds in which an FTO or its agent has an interest must retain possession of or control over the funds and report the funds to the Treasury Department.
Source: US Department of State
Company%20profile
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Hili 2: Unesco World Heritage site
The site is part of the Hili archaeological park in Al Ain. Excavations there have proved the existence of the earliest known agricultural communities in modern-day UAE. Some date to the Bronze Age but Hili 2 is an Iron Age site. The Iron Age witnessed the development of the falaj, a network of channels that funnelled water from natural springs in the area. Wells allowed settlements to be established, but falaj meant they could grow and thrive. Unesco, the UN's cultural body, awarded Al Ain's sites - including Hili 2 - world heritage status in 2011. Now the most recent dig at the site has revealed even more about the skilled people that lived and worked there.
