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Old is the new new: An outlook for fixed income
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Look to credit opportunities amid bond market rout
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Riding the high yield elevator
Are investors embracing or ditching the form of fixed income?
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The fixed income market has taken a beating in the last few months, and unsurprisingly so. Rate hikes and rising inflation, after all, don't necessarily spell opportunity for bondholders. But things may be about to change, not least because the credo of TINA (there is no alternative to equities) seems to have had its day – at least for now. We speak to those netting opportunities and those sitting on the sidelines to see how things play out.
‘Brutal’ year brings buying opportunities
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Navigating today’s fixed income challenges with a tactical approach
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In today’s fixed income environment, flexibility is a key differentiator
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Cautious and optimistic in fixed income
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Finding opportunity
Rising interest rates, geopolitical headwinds and deteriorating credit quality have created a perfect storm for fixed income investors this year. But the torrid time has given rise to more attractive pricing and compelling yields. At Citywire’s seventh Due Diligence Report virtual event of 2022, five experts reveal the idiosyncratic opportunities they are finding across fixed income markets.
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We explore our extensive buy list data to reveal the favourite ESG funds among selectors
George Bory, CFA
Chief investment strategist at Allview Fixed Income
1. Source: Bloomberg, 12/2021. 2. Source: FactSet. 3 .Source: Moody’s, Barclays Research, 12/2021. 4. Source: Bloomberg. 5. Source: Bloomberg, Morningstar. 6. Source: Bloomberg, 12/2021.
All investments are subject to market risk, including possible loss of principal. Municipal bond risks include the ability of the issuer to repay the obligation, the relative lack of information about certain issuers, and the possibility of future tax and legislative changes, which could affect the market for and value of municipal securities. Investing in below investment grade securities may carry a greater risk of nonpayment of interest or principal than higher-rated securities. Past performance is no guarantee of future results, which will vary. All investments are subject to market risk and will fluctuate in value. Diversification does not assure a profit or protect against loss in a declining market. It is not possible to invest directly in an index. Active management is the use of a human element, such as a single manager, co-managers or a team of managers, to actively manage a fund’s portfolio. Active management strategies typically have higher fees than passive management. Alpha measures a fund’s risk adjusted performance and is expressed as an annualized percentage. Bloomberg High Yield Municipal Index covers the high yield portion of the USD-denominated long-term tax-exempt bond market. The index has four main sectors: state and local general obligation bonds, insured bonds, and pre-refunded bonds. Bloomberg U.S. Aggregate Bond Index is a broad-based benchmark that measures the investment-grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, mortgage-backed securities (agency fixed-rate and hybrid adjustable-rate mortgage pass-throughs), asset-backed securities, and commercial mortgage-backed securities. The de minimis rule states that if a discount is less than 0.25% of the face value for each full year from the date of purchase to maturity, then it is too small (that is, de minimis) to be considered a market discount for tax purposes. Instead, the accretion should be treated as a capital gain. This material contains the opinions of the MacKay Municipal Managers™ team of MacKay Shields LLC but not necessarily those of MacKay Shields LLC. The opinions expressed herein are subject to change without notice. This material is distributed for informational purposes only. Forecasts, estimates, and opinions contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. Information contained herein has been obtained from sources believed to be reliable, but not guaranteed. Any forward-looking statements speak only as of the date they are made and MacKay Shields assumes no duty and does not undertake to update forward-looking statements. No part of this document may be reproduced in any form, or referred to in any other publication, without express written permission of MacKay Shields LLC. ©2022, MacKay Shields LLC. All rights reserved.
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Capital markets in recent months have been roiled by a nasty cocktail of high inflation, increasingly hawkish central banks, and a darkening geopolitical outlook that has dented global growth expectations. The hangover has taken the form of a painful correction in both equity and bond markets in the first half of 2022, disorienting many investors. For bond investors, the repricing across markets in the first half of 2022 has meant a return to more 'normal' valuations where coupons and yields from bonds should compensate investors for inflation, term structure, liquidity, and default risks. It is this return to the old that is new for today’s fixed income investors. To capitalize on these market dislocations and capture value in fixed income portfolios, we believe a thoughtful five-pronged approach can help bond investors protect capital and maximize total return in the second half of 2022 and beyond in today’s rapidly changing market. 01. Duration is a summary measure of interest rate sensitivity of an asset, which is generally higher for bonds with longer maturities and lower coupon payments. We started the year defensively, but the recent sell-off and its rapid pace have allowed us to add duration to portfolios as momentum for further rapid rate increases begins to wane. 02. Real yield is the nominal yield that a bond offers minus the expected inflation over its tenure. Positive real yields allow bondholders to protect and even grow purchasing power over their holding period. While positive real yields were nearly impossible to find earlier this year, the increase in nominal yields has been more than commensurate with inflation in certain sectors, particularly in credit markets. Currently, short-duration high yield, long-duration municipal bonds, emerging market bonds, and intermediate investment-grade credit are relatively attractive real-yield segments. 03. Credit, which bears default risk (that is, the risk of nonpayment), is priced at a spread (offers extra yield) to otherwise similar government bonds. This spread varies over time in response to macro- and micro-economic factors that influence a borrower’s ability to meet its debt obligations. Earlier this year, credit yields rose and spreads widened due to inflationary pressures. Growth fears have put additional upward pressure on spreads more recently. The combined impact has created pockets of value across different credit markets. Our general approach is to move up in quality, capture relative value across sectors, and use extensive research on specific issues to find the most favorable risk/reward trade-off. 04. Municipal bonds offer tax advantages to individual investors, which make their pre-tax yields lower than those offered in Treasury markets in more “normal” market environments. However, this sector was hit particularly hard in the first quarter due to very long durations and some liquidation of heavy investor concentrations, and its pre-tax yields have recently reached near-parity with Treasuries. With improving credit quality spurred by healthy tax receipts, municipalities have limited external funding requirements. We think this combination of price action and strong fundamentals makes municipals one of the more compelling opportunities in bond markets today. 05. Emerging markets. When developed markets find themselves 'behind the curve' in the fight against inflation while several major emerging markets have moved more quickly, it’s safe to say the world has changed. Countries such as Brazil began tightening policy about a year ago and are much closer to the end of their tightening cycles than the beginning. Moreover, as global supply chains are retooled away from Russia and China, other countries, like Brazil, Peru, and Chile, stand to benefit from new investment. In short, investors should not lose sight of the relative strength of emerging markets, nor should they ignore the emerging relative-value opportunities among them.
TM
™
David Bradin
Fixed income investment director
It is no secret that 2022 has been challenging for fixed income investors. High inflation and the Federal Reserve’s initiation of interest rate hikes have weighed on markets. Nevertheless, the broad credit universe provides ample opportunities for investors to add value through bottom-up research and security selection in each of the four primary credit sectors – high yield, investment grade, emerging markets and securitized debt. In this article – the first in a series exploring the credit universe – we discuss how income-seeking portfolios can be structured with the aim of adding incremental alpha (excess return) through security selection and asset allocation within a prudent risk management framework. Among these four credit sectors, capitalizing on relative value can be a very powerful way to enhance returns, especially during periods of high volatility like the one we are experiencing now. Here are our current views on each sector within credit and where members of our investment team are finding what they believe are attractive return opportunities within the construct of a multi-sector income portfolio. 1. High yield has not seen prolonged periods of negative returns The high yield corporate bond market has a long-term record of producing a high level of income, which is the primary contributor to its total return over a full market cycle. The sector is large – about $1.5tn – and spans a multitude of industries and issuers. Investors comfortable with taking on the higher risk associated with high yield bonds can also choose from a range of bonds of varying quality (secured and unsecured across the BB to CCC ratings spectrum). The high yield universe also provides significantly shorter duration than investment grade (IG) corporates and emerging markets debt (EMD). Unlike equities, where valuations reflect expected future cash flows, high yield returns are much more a function of an issuer’s current cash flows and ability to service debt. While high yield spreads can be volatile and directionally correlated with equities, the yield serves to cushion drawdowns and drive attractive total returns over multi-year periods. Spreads refer to the difference in yield between two bonds or types of bonds, which investors use to gauge the valuation of a bond. In fact, it has been quite rare for the high yield sector to experience prolonged periods of negative total returns. High yield returns tend not to stay negative for long High yield monthly rolling one-year returns
Damien McCann
Fixed income portfolio manager
Chart Source: Bloomberg. Data as of 3 June 2022.
Chart shows monthly one-year rolling returns for the Bloomberg U.S. Corporate High Yield 2% Issuer Capped Index from 1999 until June 2022. Since 2002, these returns have dropped into negative territory only a handful of times. The only prolonged stint below zero came in the great financial crisis of 2007 and 2008. The one-year rolling returns for 31 May 2022 were -5.3%.
A large part of the sector is reasonably liquid, allowing for fundamental research to guide relative value decisions by moving between securities from different parts of a company’s capital structure, within an industry or across the high yield sector. That said, we have recently reduced our allocation to high yield, to well below our neutral allocation, as we believe its relative value has declined compared to emerging markets, securitized credit and investment grade. Over multiple decades, the relationship between high yield and investment grade spreads has followed a similar pattern. High yield spreads tend to widen significantly compared to investment grade during crises and periods of weak economic growth. Historical spread relationships act as a guide for when high yield becomes more attractive than investment grade during periods of stress. Outside of those crisis and recession periods, spread relationships are much more stable and generally hover within a predictable range. In the current environment, we expect that slowing economic growth will continue to push high yield spreads wider compared to investment grade. As such, we are monitoring valuations and the economic backdrop and will increase our holdings given the right windows of opportunity. High yield vs investment grade spreads appear tight High yield and investment grade option-adjusted spread differential (BPS)
2.Securitized credit is under-researched, providing alpha opportunities Securitized credit can provide a higher level of income than investment grade corporate bonds with comparable ratings, while offering similar downside protection. The sector offers diverse investment opportunities across asset-backed, commercial real estate, non-agency mortgage and collateralized leveraged loan sub-sectors. Many of the fundamental drivers of these sectors are distinct from corporate and sovereign credit. This brings diversity to the portfolio. The sector is also under-researched by many market participants, enabling our team of securitized credit analysts to identify numerous mispriced investment opportunities. Securitized credit has relatively lower liquidity. As a result, repricings happen with a lag, compared to more liquid credit sectors, such as corporates and EMD. For example, when corporate spreads widened earlier in the year, especially after Russia invaded Ukraine, securitized credit initially did not move as dramatically. Spreads on securitized debt started to widen in March, at which point corporates had begun rallying back. This created a relative cheapening of securitized credit, which presented a good opportunity for investors. We added to asset-backed securities (ABS) and commercial mortgage-backed securities (CMBS), and took some small positions in collateralized loan obligations (CLOs), which were attractive relative to comparably rated investment grade corporate bonds. We are currently finding good value in the single-asset single-borrower (SASB) market. These niche investments create more concentrated risks than traditional CMBS, but the market largely consists of very high quality properties and lends itself to deep, property-specific fundamental research. This presents an opportunity for investors to gain access to specific assets that they find attractive. Elsewhere in securitized credit, we are seeing good value compared to investment grade corporates in AAA-rated tranches of several sectors: subprime auto, single-family rental and private student loans. In each case, the strong jobs market and high cash balances provide strong support for the consumer making payments on underlying loans. Spreads between CMBS and corporates remain wide CMBS A - BBB corporate bonds spreads (BPS)
Chart shows the spread between the Bloomberg Baa Corporate Index and the Bloomberg CMBS ex AAA Index from 2001 to April 2022. Spreads have recently tightened after widening in the early days of the COVID-19 pandemic, but are significantly wider than the median of 21.85 basis points. Spreads between these two asset classes have widened drastically in crisis periods, including the great financial crisis, in which they blew out above 3,000 basis points.
Chart Source: Bloomberg. Data as of 29 April 2022.
3. EMD offers diversified sources of income and return EMD offers investors a high level of income and total return. The investable universe for EMD includes both investment grade and below investment sovereign and corporate debt, which allows for broad relative value comparisons within the sector and across similarly rated investment grade and below investment grade corporate and securitized debt. EMD valuations, especially those of below investment grade-rated securities, have remained cheap relative to high yield corporates following the March 2020 selloff. More recently, rising inflation, slowing global growth, tightening US monetary policy and a soaring US dollar have all weighed on the sector. The Russia-Ukraine conflict has created an additional headwind relative to other comparably rated developed market corporate debt. But there is reason to be optimistic about the future of emerging markets. Indeed, many emerging markets' central banks are well ahead of the Fed in terms of hiking rates to rein in demand in their economies to try to tame inflation. As emerging markets' economies tend to be smaller, less economically diverse, and more reliant on exports and imports, inflation is a much more prevalent issue in these markets. Where developed markets are scrambling to address inflation that hasn't been seen in many decades, many emerging markets have an established playbook for how to rein in inflation domestically. Additionally, while higher energy prices are a challenge and many EM countries face food security problems as a result of the Russia-Ukraine conflict, numerous emerging markets (especially in Latin America and parts of Africa) are net beneficiaries of higher commodity prices since they are net exporters. Therefore, we believe that, at current valuations, EMD compensates investors well for the risks they face from what we believe should be a manageable situation.
At today’s starting yields, EMD forward returns have historically been attractive Two-year and five-year forward returns at today's stating yields (since index inception)
The chart shows the average two- to five-year forward returns for EMD, global investment grade bonds and global high yield bonds at the starting yields similar to what we see in the market currently. EMD has had the highest returns in these conditions, with 10.3% five-year forward returns and 9.0% two-year forward returns. Global high yield has had 7.4% average five-year forward returns and 5.0% average two-year forward returns. Global investment grade has had 4.5% average five-year forward returns and 5.1% average two-year forward returns. The starting yield to worst for each category is: 3.7% for global investment grade, 7.4% for global high yield and 7.1% for EMD.
Sources: Bloomberg, JPMorgan. Data as at 30 April 2022, in USD terms. Global IG Corporate: Bloomberg Global Investment Grade Corporate Bond Index (inception: 01/01/2001), Global HY Corporate: Bloomberg Global High Yield Index (inception: 01/01/1990), EMD Blend: average of JPMorgan EMBI Global Diversified Index and JPMorgan GBI-EM Global Diversified Index (inception: 01/01/2003). Average 2- and 5-year forward returns refer to the average historical returns for each index over the 2- and 5- year periods following the points at which they have touched today’s starting yields. Yield to worst is the lowest yield that can be realized by either calling or putting on one of the available call/put dates, or holding a bond to maturity.
4. Investment grade corporates: Higher quality but more sensitive to rates Investment grade corporate bonds make up the largest sector in the credit universe. It is well-diversified across issuers and industries, and includes securities with maturities across the yield curve. We specifically like how the sector can be accretive to a portfolio’s overall yield, in addition to being less volatile than high yield as a result of tighter relative spread movements. Investment grade corporates tend to be longer duration and lower coupon than high yield. This makes the sector more sensitive to interest rate movements. That said, because it is higher quality, spreads tend to widen much less relative to high yield when the economy slows and fundamentals weaken. Until recently, our asset allocation process led us to hold a very small position in investment grade corporates, as we found more value in EMD, securitized credit and high yield corporates. Following the March 2020 selloff, investment grade spreads compressed toward historically tight levels, while issuance remained at record volumes. Against the backdrop of stronger value in other sectors, we saw the relative value in investment grade to be less attractive and our investment-grade holdings were near historically low levels. With the recent selloff related to higher inflation and interest rates, as well as concerns about a slowing economy, we have been incrementally and modestly increasing our exposure to US investment grade. Specifically, we have found value in certain financial services, healthcare and media issuers. That said, we remain underweight investment grade debt overall. We have the flexibility to further increase exposure or decrease as the near- to medium-term outlook for the global economy remains uncertain. The bottom line In summary, all four sectors of the credit universe play an important role in income-seeking portfolios. The high income of the high yield and EMD sectors are balanced by the defensiveness of the higher quality investment grade corporates and securitized sectors. The shorter duration of high yield and securitized credit temper the higher interest rate sensitivity of the investment grade and EMD sectors. Overall, credit spread correlations (or the tendency for spreads on different securities within a portfolio to move in a similar fashion) are reduced by the inclusion of securitized and sovereign credit. These sectors offer fundamental drivers that can be distinct from the corporate credit drivers in high yield and investment grade corporates. Given the uncertain economic environment, we believe taking a diversified, balanced approach to credit is more important than ever. We currently favor securitized credit, followed by EMD, and are taking a somewhat cautious approach with our investments in high yield and investment grade corporates.
About the authors Damien J. McCann is a fixed income portfolio manager with 22 years of industry experience (as of 31 December 2021). He holds a Bachelor’s degree in business administration with an emphasis on finance from California State University, Northridge. He also holds the Chartered Financial Analyst designation. David Bradin is a fixed income investment director. He has 16 years of industry experience (as of 31 December 2021). He holds an MBA from Wake Forest University and a Bachelor's degree in mediated communications from North Carolina State University.
The J.P. Morgan Emerging Market Bond Index (EMBI) Global Diversified is a uniquely weighted emerging market debt benchmark that tracks total returns for U.S. dollar-denominated bonds issued by emerging market sovereign and quasi-sovereign entities. This index is unmanaged, and its results include reinvested dividends and/or distributions but do not reflect the effect of account fees, expenses or U.S. federal income taxes. J.P. Morgan Government Bond Index — Emerging Markets (GBI-EM) Global Diversified covers the universe of regularly traded, liquid fixed-rate, domestic currency emerging market government bonds to which international investors can gain exposure. This index is unmanaged, and its results include reinvested dividends and/or distributions but do not reflect the effect of account fees, expenses or U.S. federal income taxes. Bloomberg U.S. Corporate High Yield 2% Issuer Capped Index covers the universe of fixed-rate, non-investment-grade debt. The index limits the maximum exposure of any one issuer to 2%. Bloomberg U.S. Corporate Investment Grade Index represents the universe of investment-grade, publicly issued U.S. corporate and specified foreign debentures and secured notes that meet the specified maturity, liquidity and quality requirements. The Bloomberg Global Investment Grade Corporate Bond Index is a rules-based, market-value-weighted index engineered to measure the investment-grade, fixed rate global corporate bond market. The Bloomberg Global High Yield Index is a multi-currency flagship measure of the global high yield debt market. The index represents the union of the US High Yield, the Pan-European High Yield, and Emerging Markets (EM) Hard Currency High Yield Indices. The Bloomberg CMBS ex AAA Index tracks investment-grade (Baa3/BBB- or higher, excluding Aaa/AAA) commercial mortgage-backed securities that are included in the Bloomberg U.S. Aggregate Index. The Bloomberg Baa Corporate Index measures the Baa/BBB-rated, fixed rate, taxable corporate bond market. It includes USD denominated securities publicly issued by U.S. and non-U.S. industrial, utility and financial issuers. Bond ratings, which typically range from AAA/Aaa (highest) to D (lowest), are assigned by credit rating agencies such as Standard & Poor's, Moody's and/or Fitch, as an indication of an issuer's creditworthiness. Investing outside the United States involves risks, such as currency fluctuations, periods of illiquidity and price volatility. These risks may be heightened in connection with investments in developing countries. Small-company stocks entail additional risks, and they can fluctuate in price more than larger company stocks. Lower rated bonds are subject to greater fluctuations in value and risk of loss of income and principal than higher rated bonds. The return of principal for bond funds and for funds with significant underlying bond holdings is not guaranteed. Fund shares are subject to the same interest rate, inflation and credit risks associated with the underlying bond holdings. Investing in developing markets may be subject to additional risks, such as significant currency and price fluctuations, political instability, differing securities regulations and periods of illiquidity, which are detailed in the fund's prospectus. Investments in developing markets have been more volatile than investments in developed markets, reflecting the greater uncertainties of investing in less established economies. Individuals investing in developing markets should have a long-term perspective and be able to tolerate potentially sharp declines in the value of their investments. The indexes are unmanaged and, therefore, have no expenses. Investors cannot invest directly in an index. Bloomberg Index Services Limited. BLOOMBERG® is a trademark and service mark of Bloomberg Finance L.P. and its affiliates (collectively "Bloomberg"). Bloomberg or Bloomberg's licensors own all proprietary rights in the Bloomberg Indices. Neither Bloomberg nor Bloomberg's licensors approves or endorses this material, or guarantees the accuracy or completeness of any information herein, or makes any warranty, express or implied, as to the results to be obtained therefrom and, to the maximum extent allowed by law, neither shall have any liability or responsibility for injury or damages arising in connection therewith. This report, and any product, index or fund referred to herein, is not sponsored, endorsed or promoted in any way by J.P. Morgan or any of its affiliates who provide no warranties whatsoever, express or implied, and shall have no liability to any prospective investor, in connection with this report. J.P. Morgan disclaimer: https://www.jpmm.com/research/disclosures
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Are investors embracing or ditching THE form of FIXED INCOME?
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Six bond market experts tell Jennifer Hill whether they’re going up or down on high yield allocations
Polen Capital has been riding the high yield elevator for more than 25 years. ‘During that time, we’ve experienced the weightlessness of descent associated with the Tower of Terror, as well as the rush of the climb from Willy Wonka’s great glass elevator,’ says Dave Breazzano, head of the company's credit investment team. ‘Today, we are bullish on high yield, riding Willy’s elevator all the way to the ninth floor.’ Several factors support his view. Firstly, company balance sheets are relatively healthy while debt covenants are lax. Secondly, accommodative capital market conditions have enabled many issuers to extend maturities, pushing out near-term liquidity concerns. Thirdly, strategic and private equity buyers continue to bid for corporate assets, providing a means for issuers to de-lever. And lastly, private lenders with vast uninvested pools of capital are on standby, eager to finance leveraged credit issuers. Polen expects default rates to remain low even if they do rise to their historical average of 3%. Today’s spread and yield have historically proven attractive on an absolute basis and relative to other debt and equity markets. ‘Even if spreads widen or yields increase, today’s environment offers a compelling entry point for generating strong long-term returns,’ says Breazzano. ‘Ding! That’s our floor.’
“We’ve experienced the weightlessness of descent associated with the Tower of Terror”
Dave Breazzano, Head of credit investment team, Polen Capital
Following a significant increase in the yield to worst and corresponding downward move in bond prices over the past year, Franklin Templeton Investment Solutions is more constructive on high yield bonds, going up in our elevator to the seventh floor. ‘While year-to-date performance has been challenging, the opportunity for attractive income and total return has improved significantly,’ says the company's CIO Ed Perks. He recommends a modest overweight position relative to many other fixed income sectors. In addition to the more attractive price and yield dynamics, technical and fundamental reasons support a constructive view. ‘Looking at upcoming maturities by year reveals relatively limited debt coming due from now through the end of 2024 – just 7% of total outstanding notes, according to Bloomberg,’ says Perks. ‘Furthermore, the peak year for maturities in the high yield market is 2029. This provides companies with a significant amount of flexibility to navigate any near-term economic weakness keeping defaults likely at a more modest level for the asset class. ‘While corporate fundamentals, including leverage, margins and interest coverage, may deteriorate somewhat over the coming quarters, we don’t foresee a prolonged economic contraction and thus believe the improved return characteristics of the asset class warrants a constructive orientation for income portfolios.’
“We believe the improved return characteristics of the asset class warrant a constructive orientation for income portfolios”
Ed Perks, CIO, Franklin Templeton Investment Solutions
BlueBay has become slightly less bullish on high yield and is taking a short ride to the fifth floor – broadly neutral. For Justin Jewell, the company’s head of European high yield, the increase in spread premia being priced into lower-rated high yield issuers during the second quarter was notable. ‘In quarter one, the markets were adjusting to policy normalization but assuming that growth would be fine,’ he says. ‘Since then, our markets have been concerned that the combination of the inflationary environment and tightening financial conditions have increased recession risk across developed markets.’ While high yield corporates were successful at passing on the first waves of labor, energy and raw material price increases to customers, inflation pain is now being felt by both goods and service-oriented companies. On the positive side for fundamentals, corporate balance sheets are fine in aggregate and there is no material maturity wall with just over 5% of the global high yield universe maturing in the next two years. ‘The best scenario for the high yield universe would be a period of stabilization in which the macroeconomic headwinds ease and corporate fundamentals marginally weaken, providing investors with a window of opportunity to benefit from the higher yields and spreads on offer,’ adds Jewell.
“The best scenario for the high yield universe would be a period of stabilization”
Justin Jewell, Head of European high yield, BlueBay
Harris Associates is sitting stationary on the fifth floor. ‘We’re no-change for now but would get more bullish if certain inflation expectation gauges moderate over the next six months or the Fed shows more of a willingness to pivot dovish-ly if growth or growth indicators slow further,’ says Adam Abbas, its co-head of fixed income. For now, the firm sees better prospects elsewhere. Parts of the investment-grade BBB market – particularly the longer duration consumer discretionary and cyclical sectors – are just as cheap as high yield by historical standards. ‘Supposing the economic outlook deteriorates further before it gets better, these BBB-rated companies have significantly stronger credit profiles with much lower historical default rates,’ says Abbas. His finger is poised, however, over the ‘going up’ button amid high yield pricing that implies around 4-5% defaults in this cycle. ‘That is sufficiently pessimistic,’ he says. ‘High yield corporations are, on average, better equipped than in previous cycles to handle lower prospective earnings and lower free cash flow.’ For example, the current leverage (debt to profitability) for the Bank of America Merrill Lynch High Yield Index is 4.4x gross or in the lowest 30th percentile historically. Interest coverage and free cash flow to debt ratios are also historically conservative.
“We’re no-change for now but would get more bullish if certain inflation expectation gauges moderate over the next six months”
Adam Abbas, Co-head of fixed income, Harris Associates
Peter Knapp, a bond market analyst at Informa Global Markets, is ‘moderately bearish’ on high yield bonds. He has reached the fourth floor and sees himself moving towards the third. ‘High yield bonds – being the debt of companies with less than stellar financials – are generally highly leveraged and operate in markets that require adequate capital to conduct their businesses,’ he says. ‘They benefit greatly from a strong economy, lower financing rates, heightened liquidity, favorable spread concessions and low base Treasury rates. In the current environment, the economy is slowing, liquidity is currently spotty at best, spread concessions have widened 110 basis points in the year to date, and Treasury rates are higher by more than 120 basis points, pushed higher by incremental rate increases.’ The Fed has the difficult task of lowering inflation by slowing demand, while not crippling or driving the economy into recession. ‘Its intention is to avoid recession but recession could be an unintended consequence,’ says Knapp. ‘The time needed for monetary policy to accomplish its task is unknown, and its potential unintended consequences do not bode well for high yield credits and their financing needs in 2022 and likely well into 2023.’
“High yield bonds – being the debt of companies with less than stellar financials are generally highly leveraged and operate in markets that require adequate capital to conduct their businesses”
Peter Knapp, Bond market analyst, Informa Global Markets
David Norris, head of US credit at TwentyFour Asset Management, is currently sitting on the sixth floor but has pushed the down button on the elevator panel with his selected destination being the third. ‘High inflation, slowing growth and rising interest rates are creating many pitfalls that high yield investors need to watch out for,’ he says. The key challenge is whether Fed policy can steer the economy away from enough demand destruction to avoid a recession. ‘Looking at the data, we are beginning to see some cracks in the US economy,’ says Norris. ‘With the latest Fed rate hike, we can only hope it has changed the narrative on inflation, acknowledging there are many factors that are beyond its control. ‘Although we are beginning to see some leading recession indicators turn amber, the US consumer is proving resilient. Therefore, whether we continue to the ground floor depends upon whether the Fed can orchestrate a hard or soft landing. ‘For now, we look for growth to continue to slow over the coming quarters but higher interest rates and persistent inflation mean there is still a chance we see recession indicators turn from amber to red.’
“High inflation, slowing growth and rising interest rates are creating many pitfalls that high yield investors need to watch out for”
David Norris, Head of US credit, TwentyFour Asset Management
Brian Giuliano
Senior vice president, client portfolio manager at Brandywine Global Investment Management
Investing is never easy, but 2022 has been an especially challenging year. US equity market declines were foreshadowed by a historically severe drawdown across bond markets in the first quarter of the year. Macro issues have led the way in sparking the selloff. Inflation reached 40-year highs, with major ramifications for securities markets. Supply chain disruptions continue, while the Ukraine war and slowing growth in China further threaten the global economy. Meanwhile, developed market central banks are tightening aggressively into the inflationary environment even as growth slows. If inflation and rate increases do not ultimately rise above current market expectations, however, there is a case for longer-duration instruments. While bonds have been unusually volatile and more correlated to equities in the first part of 2022, that has not been the case historically. If inflation moderates and proves to be primarily a money supply shock from the Covid-19 response, the diversification benefits and defensive ballast that longer-duration government bonds provide could be an attractive value opportunity. Of course, the current backdrop has added an additional layer of complexity. Fixed income indices began the year with record-high duration, which led to the worst drawdown in decades, and increased volatility. What type of approach may help navigate such a difficult market environment? An active, multi-sector approach to fixed income has historically led to improved risk-adjusted returns and lower drawdowns over time. This approach reflects widely accepted principles, including portfolio diversification and the use of advanced asset allocation models. Flexibility is key Fixed income markets and segments are far from homogenous. What makes diversification beneficial is the broad range of potential outcomes that different sectors may provide over time. Annual returns across these sectors vary significantly, with the top-performing segment typically changing from year to year (see Figure 1). Figure 1: Annual total return of fixed income sectors by year
Alpha refers to the degree that an investment or portfolio outperforms the broad market as defined by a specific index or benchmark. Bank loans are loans by banks to corporate entities whose yield may fluctuate based on a predetermined public interest rate. The Bloomberg US MBS Index is designed to track the performance of fixed-rate agency mortgage-backed securities guaranteed by Ginnie Mae (GNMA), Fannie Mae (FNMA), and Freddie Mac (FHLMC). The Bloomberg US Government 1-2 Year Index is designed to track the performance of fixed rate securities issued by the US government with maturities of 1 to 2 years. The Bloomberg US TIPS Index is designed to track the performance of US Treasury Inflation-Protected Securities (TIPS). Bloomberg US Investment Grade Index is designed to track the performance of US investment grade securities. The Credit Suisse Leveraged Loan Index is designed to measure the performance of the global high-yield debt market. The Credit Suisse Leveraged Loan Index is designed to measure the performance of US-dollar-denominated leveraged loans, focusing on loans rated “5B” or lower from issuers developed countries Duration is a measure of an investment’s sensitivity to change in interest rates. The higher the duration number, the greater the sensitivity. The FTSE US Treasury Benchmark is designed to measure the performance of US Treasury bills, notes and bonds. The FTSE World Government Bond Index is designed to measure the developed-market government debt securities with a maturity of one year or longer. High-yield bonds are bonds which are rated below investment grade (i.e. less than BBB-rated). Investment grade bonds are rated as having a low risk of default by independent ratings agencies such as Standard & Poor, Fitch and Moody’s. Mortgage-backed securities (MBS) are bonds secured by a mortgage or collection of mortgages. Leveraged loans are loans extended to companies whose creditworthiness is reduced by the scope of existing debt or a poor credit history. Spreads refer to the difference between the yields or prices of a specific fixed income sector and those of a “risk-free” asset, typically 10 year US Treasuries. The larger the spread, the greater the perceived risk to investors for the fixed income sector. All investments involve risks, including possible loss of principal. Past performance is no guarantee of future results. Fixed-income securities involve interest rate, credit, inflation, and reinvestment risks, and possible loss of principal. As interest rates rise, the value of fixed income securities falls. High yield bonds are subject to greater price volatility, illiquidity, and possibility of default. Asset-backed, mortgage-backed or mortgage-related securities are subject to prepayment and extension risks. International investments are subject to special risks, including currency fluctuations and social, economic and political uncertainties, which could increase volatility. These risks are magnified in emerging markets. Equity securities are subject to price fluctuation and possible loss of principal. Derivatives, such as options and futures, can be illiquid, may disproportionately increase losses, and have a potentially large impact on Fund performance. The Fund may use derivatives to a significant extent, which could result in substantial losses and greater volatility in the fund’s net assets. Leverage may increase volatility and possibility of loss. Active and frequent trading may increase a shareholder’s tax liability and transaction costs, which could detract from fund performance. As a non-diversified Fund, it is permitted to invest a higher percentage of its assets in any one issuer than a diversified fund, which may magnify the Fund’s losses from events affecting a particular issuer. The manager’s investment style may become out of favor and/or the manager’s selection process may prove incorrect, which may have a negative impact on the Fund’s performance. Active management does not ensure gains or protect against market declines. The views expressed are those of the investment manager and the comments, opinions and analyses are rendered as at publication date and may change without notice. The underlying assumptions and these views are subject to change based on market and other conditions and may differ from other portfolio managers or of the firm as a whole. The information provided in this material is not intended as a complete analysis of every material fact regarding any country, region or market. There is no assurance that any prediction, projection or forecast on the economy, stock market, bond market or the economic trends of the markets will be realized. The value of investments and the income from them can go down as well as up and you may not get back the full amount that you invested.
¹ Source: Bloomberg US Corporate High Yield Index YTM as of 7/11/22 ² Source: Bankrate 30-year Mortgage Series as of 7/11/22
A Specialist Investment Manager of Franklin Templeton
Hover over fixed income segment to view in isolation
Source: Bloomberg as of 3/31/22. Past performance is not an indicator or guarantee of future performance. US Treasuries are represented by the FTSE US Treasury Benchmark. International bonds are represented by the FTSE World Government Bond Index. Mortgage-backed securities are represented by the Bloomberg US MBS Index. Cash and cash equivalents are represented by the Bloomberg US Government 1-2 Year Index. US Treasury Inflation-Protected Securities are represented by the Bloomberg US TIPS Index; Investment Grade Corporates are represented by the Bloomberg US Investment Grade Index; High Yield Corporates are represented by the Credit Suisse High Yield Index; Bank Loans are represented by the Credit Suisse Leveraged Loan Index.
While bond yields are the common denominator in generating alpha, other sources may also drive returns, varying during different times of the economic cycle. The wide range of outcomes and low correlations among fixed income sectors allow managers to actively position portfolios over time to seek better return potential. Passive investing in core bond strategies can no longer achieve both diversification and income in all market environments. An actively managed multi-sector approach to fixed income has historically led to improved risk-adjusted returns and lower drawdowns over time. After all, a bond portfolio does not need to remain static. It can function both as an income generator in the best of times and as ballast to equities and other risk assets in a challenged growth environment. In a flexible, multi-sector approach, the investment process remains consistent, but the goal can differ depending on market conditions. The outcome of this type of dynamic solution has been compelling relative to other strategies. Figure 2 highlights the returns, standard deviation, and risk measures of multiple fixed income peer groups since the recovery from the Global Financial Crisis, based on the median for each peer group. Figure 2: Risk vs return for fixed income strategy peer groups, 2010-2022
Source: eVestment. Data based on medians for each peer group for the period 12/31/09 through 3/31/22.
It is no surprise that the best overall return (based on the median for each peer group) comes from Global High Yield. However, with higher returns also comes higher volatility and drawdowns. Meanwhile, Global Multi-Sector successfully delivered attractive returns while sacrificing only a modest amount of return. In exchange, Global Multi-Sector strategy produced a substantial drop in both volatility and drawdown, beating its single-mandated peer groups in both risk categories. Outlook and opportunities Figure 3: Brandywine Global US Recession Indicator
Shaded gray denotes periods where the indicator is negative. Shaded green denotes periods of US recession. Data as of 5/24/22.
With the assumption that developed duration will act as a hedge to growth concerns, we are adopting our most defensive approach since the pre-Covid period. That said, the team still sees value in corporate credit. Though we may not have seen the peak in credit spreads, with starting yield levels above 8% in the instance of US high yield¹, there is a large amount of cushion for further spread widening to occur and still potentially achieve a positive return. The largest concerns relative to allocation and duration continues to be overly aggressive central banks. Hiking aggressively into an already slowing global backdrop could push economies into a more serious recession. In our view, there is a narrow window for a soft landing, and it’s clear the question now becomes “when” and “how severe” the next recession will be rather than “if” a recession is pending. The key to this outcome is how far does growth need to slow to dampen realized and expected inflation enough for central banks to pause. From a goods perspective, elevated inventories should provide a slowdown in price gains, however the size would have to be substantial to combat sticky service level inflation. Mortgage rates close to 6%² should also diminish housing demand sufficiently enough to warrant a slowdown in home prices. However, it’s still unclear if core inflation will come down promptly enough for central bank officials. Given the wide uncertainty, volatility within the fixed income market should remain elevated. Therefore, timing remains essential as being early could cause a substantial drawdown. Multi-sector fixed income: seeking more consistent outcomes Historical results highlight how a multi-sector approach should lead to better risk-adjusted outcomes, but what is the best process for implementing this type of strategy? Ultimately, we believe the key to success when managing a multi-sector solution is a disciplined, macroeconomic-focused approach coupled with bottom-up fundamental analysis. In other words, the macro research can drive the allocation across duration, sector, and quality while bottom-up diligence can determine the selection. In combination, the end result should provide an outcome that can adapt to an increasingly challenging market environment. For information about how we approach this challenge through the BrandywineGLOBAL Flexible Bond Fund (LFLIX), please visit our fund page.
Source: Brandywine Global. Data provided by Macrobond, Indicator based on 16 components including interest rates, high yield spreads, business confidence and activity, corporate profits, equity and lumber price.
Investors should carefully consider a fund's investment goals, risks, charges and expenses before investing. Download a prospectus which contains this and other information. Your clients should carefully read a prospectus before they invest or send money.
©2022 Franklin Distributors, LLC, member FINRA, SIPC. All rights reserved. Brandywine Global, LLC is a Franklin Templeton affiliated company.
A possible turnaround for EM DEBT
Emerging market (EM) debt has seen record-breaking outflows during the first half of the year in response to ongoing risks that include inflation, the war in Ukraine and supply chain pressures. As a result, many bonds – even those with strong fundamentals – are currently trading at significant discounts. The themes driving this underperformance appear likely to continue for at least another six months – possibly up to a year. Investors who want exposure to this market will require an opportunistic approach and a veteran manager. And those managers are already finding pockets of opportunity, with some arguing that the bonds have fallen so far that they may be at a point where they start reverting to the mean, which could lead to a modest rebound. The China impact China’s impact on EM debt is significant. When the country moved into a new lockdown early this year, the markets took a hit. Now, as the country moves slowly into a reopening phase, the bond market sees a form of modest recovery. ‘We’re including a broader recovery in China as part of our base case for the second half of the year,’ says Andriy Boychuck, head of emerging markets research at Amundi. ‘I think we’re at the low point of the cycle. We expect more stimulus to come through and more sectors to start contributing to GDP through the second half of the year and into 2023. That will better position the Asian market overall.’ Fran Rodilosso, head of fixed income and ETF portfolio management at VanEck, agrees. ‘Everything that happens in China impacts so many of these markets. While many emerging markets have cut back on accommodative policies, we think China could be a special case because of what has happened with the shutdowns. If we see that stimulus continue it would be a positive for recovery in emerging markets.’ Both men note that even with more accommodative policies, going forward will require investors to respond tactically if they want to take advantage of a reopening trade. Within high yield there are still sectors like real estate that are under significant pressure, and inflation will continue to raise overall costs even if reopening is happening. Emerging market corporates, for example, could rebound as asset flows go to companies with strong balance sheets that have shown the ability to cope with higher inflation. Surprising resilience Globally, emerging market corporates have shown surprising resilience even in the face of uncertain financial conditions. Many of the secular trends that were in place before the pandemic, such as a growing global consumer class and various technological improvements, have supported companies through the recent volatility. As a result, many of these balance sheets look stronger than some might expect given where their bonds are trading. That could provide opportunities for investors who are willing to ride out volatility. ‘If you look at our index for emerging market corporates, 63% of it by weight is still BB rated,’ says VanEck’s Rodilosso. ‘So there is a lot more strength than you might expect if you are just looking at where markets are trading.’ He adds that over the second half of the year and into 2023, the relative quality of the index could draw in investors who are looking for global yields. ‘There are still a lot of unknowns,’ he says. ‘We don’t know what’s going to happen in Ukraine or with inflation at a macro level, but longer-term, quality companies tend to exhibit durability in a portfolio despite uncertainty.’ Rodilosso doesn’t anticipate that there will be a significant wave of defaults. Though some companies will default in the event of a global recession, many that were on the brink have already fallen, he believes. Companies that have survived to this point tend to have higher-quality balance sheets. Looking for a catalyst So what will it take to bring investors back to emerging markets? While China’s reopening is a positive, it might not be enough. ‘We think there will need to be some type of catalyst to materially change the uncertainty around emerging markets,’ says Yvette Babb, fixed income portfolio manager at William Blair. According to her, investors may need to think on two tracks, at least for the near future. Over the next six months, the short-term opportunity set is likely to include high yield bonds that have fallen the farthest and are starting to rebound based on strong fundamentals. Less tactical opportunities aren’t likely to normalize before 2023. Factor tilts could also prove beneficial over the next year. Babb notes that emerging markets hard currency bonds have already seen reductions of as much as 20%. Emerging markets have been hit by a perfect storm in recent months, but with underlying fundamentals showing resiliency, it is unlikely that steep discounts will be a long-term trend. Tilting toward factors like quality could help mitigate risk. ‘If you’re looking over the next 12-18 months I think we will see more of a reversion to the mean. Many bonds are priced so far out of historical norms that it seems unlikely they will stay there, especially if we avoid a deep recession,’ she says. ‘Focusing on quality tends to show where the leaders are going to be in a cycle like this.’
EM debt has taken a beating in recent months but the form of fixed income may be on pace for a rapid rebound
“While many emerging markets have cut back on accommodative policies, we think China could be a special case because of what has happened with the shutdowns”
Fran Rodilosso, Head of fixed income and ETF portfolio management, VanEck
“Many bonds are priced so far out of historical norms that it seems unlikely they will stay there, especially if we avoid a deep recession”
Yvette Babb, Fixed income portfolio manager, William Blair
In the current market of soaring inflation and rising interest rates, one of the few effective forms of protection is to directly hedge against the risks, according to fund manager Jonathan Duensing. This is where the Nationwide Amundi Strategic Income Fund comes into its own. Could you tell us about the strategy behind the Fund and why it is performing so well in this challenging environment? The Nationwide Amundi Strategic Income Fund (NWXHX) is an actively managed multi-sector credit strategy where security-level and sector-level allocations are tactically and strategically managed to reflect the best current risk/return profiles available across the global fixed income landscape. Being benchmark agnostic, the strategy can complement existing directional public and private fixed income exposures as its return profile, by way of its use of credit and interest rate hedges, and is designed to exhibit a relatively low longer-term correlation to broad fixed income markets. The strategy actively manages net credit spread duration (or beta) and is typically run with an interest rate duration between zero and two years. Recently, positive return correlation across most asset classes has challenged asset allocators who are seeing worse-than-expected results from traditional 60/40 portfolio diversification techniques. It is important to note that rising interest rates don’t only affect high quality bonds, they also impact the discount rate of future cash flows for higher-risk assets such as high yield bonds and equities. In this type of market environment, one of the few effective forms of protection is to directly hedge against those risks, instead of solely relying on diversifying around them. The Fund actively adjusts hedging levels based on our outlook and general market risk premia and came into the year with defensive posturing toward both interest rates and broad market credit spreads. These hedges, along with strong individual security performance, have helped the Fund navigate the current environment. How is the Fund positioned to continue doing well? The environment has been one where market beta (credit spread and interest rate sensitivity) has often been, in our opinion, unfavorably priced. While broad market valuations have recently normalized somewhat, we prefer to maintain a more cautious overall risk posture and focus return generation on security selection and sector allocation. In addition to the credit and interest rate hedges in place to limit overall return volatility, we have positioned over 25% of the portfolio in floating rate securities. The coupons on these securities are designed to increase as short-term interest rates move higher along with future Fed policy. These coupon characteristics allow us to ‘play offense’ against persistent inflation and higher interest rates. How does the Fund’s size help its performance? We remain cognizant of the total assets across our platform. While Amundi manages over $2tn in assets globally, the Nationwide Amundi Strategic Income Fund is designed to be an active strategy that navigates throughout large and small segments of the market depending on our investment team’s view of opportunity and relative value. Our investment team consists of sector specialists in large markets such as high yield and investment grade corporate bonds, but also includes specialists in smaller markets such as consumer asset backed securities and subsectors within commercial and residential mortgage credit. These heterogeneous asset structures can provide differentiated cashflows and security selection opportunities less trafficked by a majority of market participants due to needed specialized modeling capabilities, or the difficulty sourcing bonds due to limited issuance sizes. How should investors use this Fund within their portfolio? As an actively managed long/short multi-sector credit strategy, we aim to be a valuable tool within an investor’s broader portfolio. The Fund can complement an investor’s allocation to directional fixed income and equity exposures because the return profile is designed to exhibit a relatively low correlation to broad fixed income and equity markets. We efficiently re-position our Fund so that our security-level and sector-level allocations reflect the particular exposures, offering the best return/risk profiles in a changing market. Investors particularly find our flexibility and tactical nature valuable if they do not wish to continuously reposition their allocations as markets change and prefer a manager to do this for them. Given the high levels of volatility in today’s market, paired with the multiple challenges set forth for the Federal Reserve, we continue to dynamically hedge the Fund’s interest rate sensitivity and its sensitivity to broad market risk-off sentiment. Our return sources remain focused towards fundamental, bottom-up, individual security research positioned across multiple issuers, sectors, countries, maturities, and structural opportunities.
Ben Barber
SVP, Director of Municipal Bonds
Jonathan Duensing, CFA
Portfolio manager for the Nationwide Amundi Strategic Income Fund and head of US fixed income for Amundi US
Important Information: Buying and Selling Fund Shares: You can buy or sell shares of the Fund on any business day that the Fund is open through your broker or financial intermediary, or by mail or telephone. You can pay for shares by wire: The minimum investment for Institutional shares is $100,000. There is no minimum for additional investments. Polar Capital LLP 16 Palace Street London SW1E 5JD United Kingdom Telephone: (800) 806-1112 May be subject to platform minimums if purchased through a brokerage account. Payments to broker-dealers and other financial intermediaries: If you purchase the Fund through a broker-dealer or other financial intermediary (such as a bank), the Fund and its related companies may pay the intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediary’s website for more information. Dividends, capital gains and taxes: The Fund intends to make distributions that are generally taxable as ordinary income or capital gains, except when your investment is in an IRA, 401(k) or other tax-advantaged investment plan. However, you may be subjected to tax when you withdraw monies from a tax-advantaged plan. Prospectus offer: An investor should consider the Fund’s investment objectives, risks, and charges and expenses carefully before investing or sending any money. This and other important information about the Funds can be found in the prospectus or summary prospectus which can be obtained at www.polarcapitalfunds.com or by calling (800) 806-1112 (toll-free). Please read the prospectus or summary prospectus carefully before investing. The Polar Capital Funds are advised by Polar Capital and distributed through Foreside Financial Services, LLC. Polar Capital is not affiliated with Foreside Financial Services, LLC. Polar Capital funds are not FDIC-insured, may lose value, and have no bank guarantee. Benchmark: The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of emerging markets. The MSCI Emerging Market Index consists of the following 26 emerging market country indices: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates. Indices mentioned are unmanaged statistical composites of stock market performance. Investing in an index is not possible. Risk considerations: The Fund invests in International and Emerging Markets. International investments involve special risks, including currency fluctuation, lower liquidity, different accounting methods and economic and political systems, and higher transaction costs. These risks typically are greater in Emerging Markets. Such risks include new and rapidly changing political and economic structures, which may cause instability; underdeveloped securities markets; and higher likelihood of high levels of inflation, deflation or currency devaluations. Emerging Markets involve heightened risks related to the same factors, in addition to those associated with their relatively small size and lesser liquidity. The small and mid-cap companies the Fund may invest in may be more vulnerable to adverse business or economic events than larger companies and may be more volatile; the price movements of the Fund’s shares may reflect that volatility. The Fund may invest in American Depositary Receipts (“ADRs”) of foreign companies. Investing in ADRs poses additional market risks since political and economic events unique in a country or region will affect those markets and their issuers and may not affect the U.S. economy or U.S. issuers. Fund holdings and sector allocations are subject to change at any time and are not recommendations to buy or sell any security. A list of all holdings during the period, corresponding performance contributions and attributions, and the calculation methodology is available upon request. GDP (gross domestic product): The monetary value of goods and services produced in/by a country over a specific period of time EPS (earnings per share): Shows how profitable a company is for each issued share (profit divided by the number of outstanding company shares)
Disclosures The results shown represent past performance; past performance does not guarantee future results. Call 800-848-0920 to request a summary prospectus and/or a prospectus or download prospectuses at nationwide.com/mutual-funds-prospectuses.jsp. These prospectuses outline investment objectives, risks, fees, charges and expenses, and other information that you should read and consider carefully before investing. KEY RISKS: The Fund is subject to the risks of investing in fixed-income securities, including high-yield bonds (which are more volatile). The Fund may invest in corporate loans (which have speculative characteristics and are high risk). The Fund also is subject to the risks of investing in foreign securities (currency fluctuations, political risks, differences in accounting and limited availability of information, all of which are magnified in emerging markets). The Fund may concentrate on specific sectors or countries, subjecting it to greater volatility than that of other mutual funds. The Fund may invest in more-aggressive investments such as derivatives (many of which create investment leverage and illiquidity, and are highly volatile). The Fund may invest in sovereign debt (a governmental entity may delay or refuse to pay interest or repay principal). Funds that invest in high-yield securities are subject to greater default risk, liquidity risk, and price fluctuations than funds that invest in higher-quality securities. The prices of high-yield bonds tend to be more sensitive to adverse economic and business conditions than are higher-rated corporate bonds. Increased volatility may reduce the market value of high-yield bonds. They are also subject to the claims-paying ability of the issuing company. The Fund’s holdings may subject the Fund to liquidity risk, making it more volatile than other mutual funds. Please refer to the most recent prospectus for more detailed information. Nationwide Funds distributed by Nationwide Fund Distributors LLC (NFD), member FINRA, Columbus, OH. NFD is not affiliated with any subadviser contracted by Nationwide Fund Advisors, with the exception of Nationwide Asset Management, LLC. Nationwide Investment Services Corporation, member FINRA, Columbus, Ohio. Nationwide, the Nationwide N and Eagle and Nationwide is on your side are service marks of Nationwide Mutual Insurance Company. © 2022 Nationwide MFM-4691AO.1 (07/22)
GROUP / INVESTMENT US OE Multisector Bond Nationwide Amundi Strat Inc Instl Svc Benchmark 1: Bloomberg US Agg Bond TR USD Benchmark 2: US Fund Multisector Bond Peer Group: Morningstar Category = Multisector Bond Number of investments ranked Peer Group Median
0.61 1.00 0.90
Prospectus Net Expense Ratio
Morningstar Rating Overall
Inception Date
02/11/2015 03/01/1980 01/04/1977
Return (Cumulative)
Peer group percentile
SELECT A TIME PERIOD:
QTD YTD 1-YEAR 3-YEAR 5-YEAR SINCE INCEPTION
QTD: 4/1/2022 - 6/30/2022
6 360
-2.72 -4.69 -6.12 -6.82
YTD: 1/1/2022 - 6/30/2022
4 353
-4.00 -10.35 -10.16 -10.93
1-YEAR
6 346
-3.47 -10.29 -9.85 -10.85
3-YEAR
4 306
2.69 -0.93 -0.39 -0.17
5-YEAR
2 270
3.72 0.88 1.23 1.41
SINCE INCEPTION - 6/30/2022
1
5.17 6.92 6.81 2.73
Bond markets have radically shifted, and this change is rooted in several factors. One is the evolving nature of the energy industry in the past decade; another, the recent surge in inflation. Tom Martin, senior portfolio manager at Globalt Investments, explains: ‘Junk today is not the same as junk ten years ago.’ He says the portion of high yield – or ‘junk’ debt – issued by energy companies has oscillated. In 2012, when the shale oil fracking boom was in full swing, energy company bonds represented less than 9% of holdings in the SPDR Bloomberg High Yield Bond ETF, according to data from Morningstar. But the classic oil market boom-bust cycle quickly reared its head. A barrel of Brent crude oil cost more than $100 a barrel in 2014 before tumbling to less than $30 in early 2016, according to data from TradingEconomics.com. The price drop dramatically affected the profitability and creditworthiness of energy companies, Martin says. By the end of 2016, the portion of energy debt in the SPDR Bloomberg High Yield ETF surged to almost 16%. In other words, high yield investors were suddenly more exposed to the energy sector than they had been just a few years earlier. With recent Brent crude prices surging above $120 a barrel (in early March) and remaining above $100 since then for the most part, the percentage of energy in the SPDR ETF has fallen back again to around 12%. Boom-bust history The value of debt across investment grade and high yield markets paints a picture of parts of the economy that are more (investment grade) or less (high yield) creditworthy. ‘It is not evenly distributed across the economy,’ Martin says. This highlights an essential point about fixed income investing: what falls into investment or sub-investment grade varies substantially depending on the fortunes of each sector within the economy. Put simply, the fluctuating energy portion of high yield indices means investors may get more energy exposure than they want or even realize. Therefore, professional investors tend to shy away from investment products that track junk bond indices such as the aforementioned SPDR fund and the similar iShares iBoxx $ High Yield Corporate Bond ETF. ‘We prefer to play junk bonds through an active strategy because of them being tied closely to energy,’ says Amanda Agati, CIO of PNC Asset Management Group. ‘Investors can get dragged all over the place.’ Returning capital Another change has occurred on Wall Street. Investors became tired of energy companies spending heavily on developing new oil deposits during the good times at the expense of paying dividends and buying back outstanding stock. After years of jawboning from investors, energy company bigwigs decided to change their ways. ‘Over the past few years, they wound up going through balance sheet repair and not expanding their drilling,’ says Peter Tchir, head of global macro at Academy Securities. Big oil cutting its debt levels and prioritizing returning capital to shareholders versus drilling new wells has come at a cost to Main Street following Russia’s late February invasion of Ukraine and the resulting Western sanctions. Economists like to say the cure for high prices is high prices, which means that companies would produce more energy when oil prices get elevated. But that hasn’t been the case for much of this year. ‘The industry is not getting the stuff out of the ground,’ Agati says. ‘That’s different from past oil cycles.’ This lack of extraction is why people are paying far more at the gas pump as oil prices and gasoline climb in unison. No quick relief There are oil wells that have been drilled and capped but it is unlikely they will come into production anytime soon. That’s mainly to do with the fact that it’s not clear how long the Russia-Ukraine conflict will last. And that makes most CEOs unwilling to spend the money to get mothballed wells pumping again. In addition, environmental concerns are making it harder for oil companies to get permission to drill. ‘People made the energy business so much more difficult, so you don’t see the growth,’ Tchir says. ‘That’s why we have so many supply issues today.’ Nevertheless, supply issues are delivering oil companies vast profits. ‘This is as good as it could possibly get,’ Agati says. ‘We are at all-time margin highs.’ In turn, that excess profitability of oil companies could lift $68bn of high yield energy bonds to investment grade status by the end of 2023, according to an analysis by JPMorgan. This likely means the energy component of the investment grade bond market will edge higher or mirror what’s happening in high yield. For instance, when energy’s share of the high yield market peaked in 2016, it fell to just 2.8% of the iShares iBoxx $ Investment Grade Corporate Bond ETF. More recently energy’s portion of the high-grade ETF rose to 7.5%. Soaring inflation The fixed income market has also been indirectly affected by surging inflation, which recently hit 9.1% in the US. In turn, the Federal Reserve raised the cost of borrowing to help reign in the rising cost of living. While that is good for individuals, high yield investors have seen their returns savaged as rising interest rates mean lower bond prices. Both the high yield ETFs mentioned above are down 15-16% so far this year. The investment grade ETF fell 14% over the same period. Another way of looking at the high yield market is that soaring inflation means that junk-rated borrowers pay more than five percentage points extra in interest payments than the government. This so-called spread hovered around three percentage points last year. Still, the spread isn’t high by historical standards, causing some investors to contend that there isn’t enough upside to investing in high yield until spreads widen further. ‘You want to get paid for the risk you take on,’ Martin adds.
The composition of bond market indices is hugely dictated by oil prices, says Simon Constable in this need-to-know guide
“Over the past few years, energy companies wound up going through balance sheet repair and not expanding their drilling”
Peter Tchir, Head of global macro, Academy Securities
But the classic oil market boom-bust cycle quickly reared its head. A barrel of Brent crude oil cost more than $100 a barrel in 2014 before tumbling to less than $30 in early 2016, according to data from TradingEconomics.com. The price drop dramatically affected the profitability and creditworthiness of energy companies, Martin says.
The value of debt across investment grade and high yield markets paints a picture of parts of the economy that are more (investment grade) or less (high yield) creditworthy. ‘It is not evenly distributed across the economy,’ Martin says.
Economists like to say the cure for high prices is high prices, which means that companies would produce more energy when oil prices get elevated. But that hasn’t been the case for much of this year.
For instance, when energy’s share of the high yield market peaked in 2016, it fell to just 2.8% of the iShares iBoxx $ Investment Grade Corporate Bond ETF. More recently energy’s portion of the high-grade ETF rose to 7.5%.
We are in a tightening cycle the likes of which most investors have never seen, generating both fear and risk aversion. However, times like these often open the door to attractive investment opportunities. TCW explains why now may be one of the most interesting times in fixed income in decades.
Josh Rubin
Portfolio manager and managing director of Thornburg Investment Management
Bryan Whalen, CFA
Liza Crawford
Head of securitized research
Jerry Cudzil
Head of credit trading
Terms & Conditions
TERMS OF SERVICE This Site (as defined below) is owned and operated by Citywire Financial Publishers Ltd (“Citywire”). Citywire is a company registered in England and Wales (company number 3828440), with registered office at 3 Spring Mews, London, SE11 5AN. By using or accessing our Site or services, including the Citywire Feed, (whether as a guest or a Member) you confirm your agreement to these terms of service (“Terms”). Your use of our Site is at all times subject to these Terms (which form a binding contract between Citywire and you). If you do not agree to these Terms, do not use our Site. Other terms may also apply to your use of our Site and services as set out in a separate agreement between us or between us and your employer. The Citywire Privacy Policy forms a part of this Agreement and explains how information collected while becoming a Member or, in limited circumstances, whilst using our Site as a non-Member, may be used by Citywire and its partners. By using our Site, you confirm that you have read the Citywire Privacy Policy and you warrant that all data provided by you is accurate. 1. Terminology “App” means the Citywire software application from time to time downloadable from a third party app store (whether or not for payment) to enable you to use our Site from the device to which the software application is downloaded. “Citywire”, “we” or “our” – Citywire Financial Publishers Limited. “Citywire Feed” - any Content downloaded for display on your website in accordance with the licence set out in section 5 below. “Citywire Privacy Policy” – our privacy policy available at https://citywireusa.com/professional-buyer/privacy as amended from time to time. “Content” – All information, content, data, graphics and services found on our Site, including without limitation, Feed Content. “Content Standard” – the content standard set out at Clause 8. “Contribution” – any (i) uploading, editing, modification or submission of material or information to our Site that you carry out or cause to be made; and/or (ii) contact that you make or cause to be made through our Site with any other user(s) of our Site. “Feed Content” - any headlines, active links or other source identifiers that you specifically select to receive via the Citywire Feed. “Intellectual Property Rights” means all proprietary and/or intellectual property rights including, without limitation, copyright (including rights in databases), know-how, trade secrets, trademarks, patents, trade names and other similar rights in each case whether registered or not and as may be exercised in any part of the world. “Member” - A user of our Site that has created an account. To the extent a Member is using the Site on behalf of an employer, organization, or other entity, then the term “Member” includes such employer, organization, or other entity. “Site” – means (i) the website: www.citywireusa.com; (ii) all sub-domains and services made available through such website; (iii) any other sites operated by Citywire or its affiliates. “Solution” means Site, App, Services, Content. “you”- A user of our Site. To the extent you are using the Site on behalf of an employer, organization, or other entity, then the term “you” includes such employer, organization, or other entity. 2. Obligations; Membership 2.1 Members must protect and keep secret their password at all times and must not allow any third party directly or indirectly to use their membership, username or password. Member(s) agrees to assume all responsibility concerning the Member(s)’ use of the Solution, including being held responsible for any and all activity occurring through the Member(s)’ username and password. 2.2 You confirm that you are acting in a professional business capacity in entering into these Terms, and are not acting as a consumer. 2.3 To the extent you (whether as a guest or as a Member) are accessing and using the Site on behalf of a an employer, organization, or any other third party, you represent and warrant that you are an authorized representative of the entity with the authority to bind the entity to these Terms, and that you agree to this Terms on the entity’s behalf. 2.4 You warrant that the registration information you have provided is complete and accurate, including in relation to the identity of the business you have registered on behalf of. 2.5 You agree to abide by all applicable laws and regulations with respect to your use of the Site (including use of the App and all use of Content). 3. The Site 3.1 Citywire reserves the right to modify, alter, change or withdraw any part of or access to the Site or App, whether temporarily or permanently, with or without notice to you and you confirm that any such modification, alteration, changes or withdrawal by Citywire shall be without any liability to you. 4. Intellectual Property Rights 4.1 Subject to the licence set out in clause 5 you must not copy, reproduce, modify, create derivative works from, transmit, distribute, publish, summarise, adapt, paraphrase or otherwise publicly display any Content or any portion of the Site or App without the specific written consent of a director of Citywire. This includes, but is not limited to, the use of Content for any form of news aggregation service or for inclusion in services which summarise articles, the copying of any fund manager data (career histories, profiles, ratings, rankings etc) either manually or by automated means (“scraping”). 4.2 All Intellectual Property Rights in and to our Site and App (including the Content) is owned by Citywire or our third party licensors. No rights are granted to you in relation to such Intellectual Property Rights other than the limited licence rights expressly set out in clause 5. 4.3 Content is protected by copyright laws and treaties around the world, including, without limitation, U.S. Copyright law. Unless otherwise noted, the Site, the App, and all Content are © Citywire Financial Publishers Ltd 2019. All rights not expressly granted herein are reserved. Images and videos used on our websites may come from various third party image libraries. For credit information relating to specific images where not stated, please contact picturedesk@citywire.co.uk 5. Licence 5.1 Subject to the terms of this Agreement, Citywire grants you a non-transferable, non-sublicensable, royalty-free, non-exclusive limited licence to use our Site on the following conditions: (i) you may, subject to clauses 5.3, 5.4 and 5.5, display Feed Content on your website and on other websites in respect of which you have obtained all necessary permissions and authorisations to display Feed Content on; (ii) you shall not copy, display, reproduce or create derivate works from any Content (other than Feed Content to which clause 5.1(i) applies); and (iii) nothing in these Terms grants you any right to use Citywire’s logo, brand or trade marks on your site or elsewhere. 5.2 You must ensure that all Feed Content displayed on any websites pursuant to clause 5.1 has an accreditation to Citywire as follows: “Citywire information is proprietary and confidential to Citywire Financial Publishers Ltd (“Citywire”). It may not be copied. Citywire excludes any liability arising out its use.” 5.3 Unless otherwise specifically agreed in writing by Citywire, you may not directly or indirectly charge users specifically for accessing Feed Content or otherwise commercialise Feed Content. You shall not re-sell or otherwise commercialise the Content in any way (other than the limited rights in relation to Feed Content set out in clause 5.1). 5.4 You must create a functional link back to the Citywire story(ies) summarised by the Feed Content. If you are displaying the Feed Content where a functional link back to Citywire is not possible, you must display on-screen the URL from which the Feed Content can be obtained. You may not directly or indirectly change, edit, add to or produce summaries of or derivative works from Feed Content or any content on the Citywire website nor place any full-story Citywire content in an HTML (or any other markup language) frame-set. 5.5 You may not directly or indirectly suggest any endorsement or approval by Citywire of your website or any non-Citywire entity, product or content or any views expressed within your website or service. 5.6 You acknowledge that Citywire has absolute editorial control over all Content and you accept that Citywire is editorially independent and that the editorial integrity of Content is the sole responsibility of Citywire. 5.7 Should you receive any enquiries which relate to Citywire or the Citywire Content you shall promptly refer such enquiries to Citywire. 5.8 You acknowledge and agree that we own all rights of whatever nature in and to the App. Citywire grants you a non-transferable, non-sublicensable, royalty-free, non-exclusive limited licence to (i) download the App to your device from the app store where it is lawfully held; and (ii) use the App for the purpose of accessing our Site on these Terms. You are granted no other rights in relation to the App and all rights not expressly granted are reserved by us. You acknowledge and agree that Citywire has no responsibility for or in relation to the app store from which you downloaded the App and has no obligation to maintain the App. The App is supplied ‘as is’ and neither Citywire nor any anyone else makes any representation, warranty, condition or other commitment (whether express or implied, by statute, common law, collaterally or otherwise) of any kind in relation to the App. Neither Citywire nor anyone else will have any liability of whatever nature (whether in contract, negligence or other tort or otherwise) in relation to the App. You will not reverse engineer, decompile or otherwise endeavour to obtain the source code to the App (save to the extent that you cannot be prohibited from so doing under applicable law). 6. Contributions 6.1 Whenever you make any Contribution you must comply with the Content Standards. 6.2 Subject to these terms of use, Citywire acknowledges and agrees that you retain ownership of all your intellectual property rights to your Contributions, and no intellectual property rights shall be assigned from you to Citywire. 6.3 You grant Citywire a perpetual, royalty-free, non-exclusive, perpetual (which for the avoidance of doubt means continuing after this Agreement), irrevocable, transferable, world-wide licence to use, copy, distribute, display, disclose and sell to third parties any Contribution (in whole or in part) for any purpose. These activities include but are not limited to editing or creating derivative works of any Contribution. 6.4 To the maximum extent permitted by applicable law, you irrevocably and unconditionally waive all moral rights to any Contribution. 6.5 You acknowledge and agree that (i) we have the right to remove or edit any Contribution you make on our services, including modifying and adapting it for operational and editorial reasons, with or without showing or marking that the Contribution has been removed or edited; and (ii) we have the right to disclose your identity to any third party who is claiming that any Contribution constitutes a violation of their intellectual property rights, or of their right to privacy. 6.6 Citywire does not moderate or actively review Contributions. Therefore all Members and visitors to the Site should treat any Contributions with caution. You accept (i) that we are not responsible for content of Contributions; (ii) that we do not endorse any of the material contained in them; and (iii) Citywire does not check the accuracy of information supplied by Members in their profiles. 6.7 It is the policy of Citywire to respond to alleged infringement notices that comply with the Digital Millennium Copyright Act (“DMCA”). If you believe that your copyrighted work has been copied in a way that constitutes copyright infringement and is accessible via the Solution, please notify the Citywire copyright agent as set forth below. For your complaint to be valid under the DMCA, you must provide the following information in writing: a. An electronic or physical signature of a person authorized to act on behalf of the copyright owner; b. Identification of the copyrighted work that you claim has been infringed; c. Identification of the material that is claimed to be infringing and provide a link (where available) to where it is located on the Solution; d. Information reasonably sufficient to permit Citywire to contact you, such as your address, telephone number, and, email address; e. A statement that you have a good faith belief that use of the material in the manner complained of is not authorized by the copyright owner, its agent, or law; and f. A statement, made under penalty of perjury, that the above information is accurate, and that you are the copyright owner or are authorized to act on behalf of the owner. The above information must be submitted to the following Citywire copyright agent: Ona Kviliute +44 (0)20 7840 5125 okviliute@citywire.co.uk 3 Spring Mews, London, SE11 5AN, United Kingdom UNDER FEDERAL LAW, IF YOU KNOWINGLY MISREPRESENT YOUR CLAIM, YOU MAY BE SUBJECT TO CRIMINAL PROSECUTION FOR PERJURY AND CIVIL PENALTIES, INCLUDING MONETARY DAMAGES, COURT COSTS, AND ATTORNEYS’ FEES. In accordance with the DMCA and other applicable law, Citywire has adopted a policy of terminating, in appropriate circumstances, the accounts of users who are deemed to be infringers. Citywire may also, at its sole discretion, limit access to the Site and/or terminate the accounts of any users who infringe any intellectual property rights of others, whether or not there is any repeat infringement. 7. Acceptable Use Policy 7.1 You may use our Site only for lawful purposes. You may not: (i) use our Site in any way that breaches any applicable local, national or international law or regulation; (ii) use any materials, data or information which you have obtained from the Site in any manner which, in Citywire’s reasonable opinion, is derogatory, damages Citywire’s reputation or takes advantage of it in any way; (iii) use our Site in any way that is unlawful or fraudulent, or has any unlawful or fraudulent purpose or effect; (iv) use our Site to send, knowingly receive, upload, download, use or re-use any material which does not comply with the Content Standards; (v) subject to Clause 5, deep-link to any portion of our Site for any purposes without the prior written permission of Citywire; (vi) perform any automated use of our Site, such as, but not limited to, using robots, spiders, scripts to create Contributions, to extract any of the content of our Site through such means as ‘screen scraping’, ‘database scraping’ or otherwise; (vii) violate the restrictions in any robot exclusion headers on this website or bypass or circumvent other measures employed to prevent or limit access to our Site; (viii) use this service as research or support for, or to inform your own or your company’s or employer’s subscription based service, or any subscription based service without obtaining a licence from Citywire in writing, such licence to be on commercial terms agreed by the parties; (ix) use our Site (or any of the Content) for the purpose of building a database or to use this for your own commercial exploitation by its inclusion in your own activities and/or services without obtaining the written approval of Citywire in advance of its publication; (x) access, use, or distribute the Site, App (or any Content) to develop (or assist any third party in developing) a product or service (including events) that competes with any product, service, or event of Citywire, or for any other competitive purposes. (xi) interfere with, disrupt, or create an undue burden on our services or the network or services connected to our Site; (xii) engage in, either directly or indirectly, or encourage others to engage in, click-throughs generated through any manner that could be reasonably interpreted as coercive, incentivised, misleading, malicious, or otherwise fraudulent; (xiii) collect information from our Site and incorporate it into your own database or products; or (xiv) use our services to knowingly transmit any data, send or upload any material that contains viruses, Trojan horses, worms, time-bombs, keystroke loggers, spyware, adware or any other harmful programs or similar computer code designed to adversely affect the operation of any computer software or hardware. 7.2 Use of the Printable Version facility is for private purposes only EXCEPT ONLY In the case of financial intermediaries, wealth managers or other entities or individuals providing investment advice to clients the printable version can be used to aid such services. 8. Content standards 8.1 These content standards apply when you make a Contribution to the Site. These content standards apply to each part of any Contribution as well as to its whole. 8.2 Contributions must: (i) be accurate (where they state facts); (ii) be genuinely held (where they state opinions); and (iii) comply with applicable law, rules and regulations, in the U.S. and in any country from which they are posted. 8.3 Contributions must not: (i) infringe or promote infringement of any copyright, database right, trade mark or other intellectual property right of any other person (including, promoting or offering pirated computer programs or links to such programs, information used to circumvent manufacturer-installed copy-protect devices, including serial registration numbers for software programs, rights management information or any type of cracker utilities); (ii) contain intentionally made false or misleading statements; (iii) offer to buy, sell or broker an investment; (iv) violate applicable laws, rules or regulations, including without limitation, rules or regulations of any applicable stock exchange or breach insider dealing regulations or confidentiality agreements; (v) involve commercial activities and/or sales without prior written consent from us such as contests, sweepstakes, group-buying, advertising, or pyramid schemes; (vi) be made in breach of any legal duty owed to a third party, such as a contractual duty or a duty of confidence; (vii) contain any material or link to material which: a. is defamatory of any person; b. is obscene, vulgar offensive, hateful or inflammatory; c. is likely to harass, upset, embarrass, alarm or annoy any other person; d. is threatening, abusive or invade another’s privacy, or likely to cause annoyance, inconvenience or needless anxiety; e. contains or promotes sexually explicit material or violence; f. promote discrimination based on race, sex, religion, nationality, disability, sexual orientation or age; or g. is likely to deceive any person; (viii) use invalid or forged headers to disguise the origin of any Contribution, or otherwise misrepresenting yourself or the source of any Contribution; (ix) use our Site to transmit, or procure the sending of, any unsolicited or unauthorised advertising or promotional material or any other form of similar solicitation (spam); (x) be used to impersonate any person, or to misrepresent your identity or affiliation with any person; (xi) give the impression that they emanate from Citywire or a Citywire employee, administrator or moderator, or another user of our Site; or (xii) advocate, promote or assist any illegal activity. 9. Non-reliance 9.1 You agree that you are responsible for your own investment decisions and that you are responsible for assessing the suitability and accuracy of all information and for obtaining your own advice thereon. You recognise that any information given on our Site is not related to your particular circumstances. Circumstances vary and you should seek your own advice on the suitability to them of any investment or investment technique that may be mentioned. (a) We do not provide, and no Content constitutes, investment advice; (b) You will not treat or represent Content as investment advice; (c) We do not recommend or endorse any product; (d) Content is not intended to address your particular requirements. We are not aware of circumstances specific to you and which could influence which financial products are more or less suitable for you and do not represent that we are aware of any such circumstances. We do not recommend that any particular product is suitable for you; (e) No Content constitutes or should be interpreted as a solicitation to engage in any investment activity; (f) Any investment decision made by you is entirely at your own risk; (g) Subject to paragraph 11, we shall not be liable for any losses, cost or expenses which may be incurred by you as a result of any investment made; (h) You may not use the Content in, or generate based on the Content, any advice, recommendations, guidance, publications or alerts made available to your clients or other third parties; (i) Whilst we try to ensure the Content is accurate and up to date, we cannot be responsible for any inaccuracies in Content. We are under no responsibility to provide you with access to any additional information or to update the Site, even if inaccuracies become apparent. 9.2 The fund manager performance analyses and ratings provided on this website are the opinions of Citywire as at the date they are expressed and are not recommendations to purchase, hold or sell any investment or to make any investment decisions. Citywire’s opinions and analyses do not address the suitability of any investment for any specific purposes or requirements and should not be relied upon as the basis for any investment decision. 9.3 Persons who do not have professional experience in participating in unregulated collective investment schemes should not rely on material relating to such schemes. 9.4 Past performance of investments is not necessarily a guide to future performance. Prices of investments may fall as well as rise. 9.5 Persons associated with or employed by Citywire may hold positions or take positions in investments referred to in this publication. 9.6 Citywire operates a policy of independence in relation to matters where the operators may have a material interest or conflict of interest. 10. Limited Warranty 10.1 Citywire will use reasonable endeavours to maintain the Site. You will not be eligible for any compensation because you cannot use any part of the Site or for any failure of the Site as a result of an event beyond Citywire’s reasonable control. 10.2 Neither Citywire nor its employees assume any responsibility or liability for the accuracy, completeness or availability of the information contained on our Site. 10.3 Neither Citywire nor anyone else makes any representation, warranty, condition or other commitment of whatever nature in relation to any information obtained by you through use of this Site. You acknowledge and agree that any information that you receive through use of the Site is provided “as is” and “as available” basis without representation or endorsement of any kind and is obtained at your own risk. 10.4 You agree that you are solely responsible for any damage to your computer system and/or loss or damage to your data files through use of this Site or by the use of links on the Site to external information. 10.5 To the maximum extent permitted by law, Citywire excludes all representations, warranties, conditions or other terms, whether express or implied (by statute, common law, collaterally or otherwise) in relation to the Site or otherwise in relation to any Content or Feed, including without limitation as to satisfactory quality, fitness for particular purpose, non-infringement, compatibility, accuracy, or completeness. 11. Liability To the maximum extent permitted by law, Citywire will not be liable in contract, tort (including negligence) or otherwise for any liability, damage or loss (whether indirect, consequential, special or otherwise) incurred or suffered by you or any third party in connection with our Site, or in connection with the use, inability to use, or results of the use of our Site or App, any websites linked to it or any materials posted on it or otherwise in relation to any Content or Feed. Citywire does not limit liability for fraudulent misrepresentation or for death or personal injury arising from Citywire’s gross negligence or willful misconduct. HOWEVER, YOUR EXCLUSIVE REMEDY FOR ANY CLAIM ARISING FROM A BREACH BY CITYWIRE OF THESE TERMS IS CESSATION OF USE OF THE SITE, APP, OR CONTENT. FURTHER, TO THE GREATEST EXTENT PERMITTED BY LAW, THE TOTAL LIABILITY OF CITYWIRE IS LIMITED TO THE GREATER OF $50 OR AN AMOUNT NOT EXCEEDING THE TOTAL AMOUNT ACTUALLY PAID BY YOU TO CITYWIRE DURING THE PRIOR SIX (6) MONTHS IN CONNECTION WITH YOUR INDIVIDUAL USE OF THE SITE OR THE APP. In addition, you may bring a claim only on your own behalf. You will not participate in a class action or class-wide arbitration for any claims covered by these terms. 12. Changes to our Terms Citywire may change the Terms from time to time. Any such changes will be incorporated on our Site. Changes will take effect 30 days after notification. Your continued use of any part of the Site following such change shall be deemed to be your acceptance of such amended Terms. You acknowledge that you are solely responsible for checking these Terms from time to time to see the changes which have been made to these Terms. If you do not accept any such changes you should stop using our Site. 13. Breaches; Term and Termination 13.1 The Terms will take (re-take) effect at the time you access and use the Site. You agree that Citywire may terminate your membership or the agreement constituted by these Terms (as Citywire may choose) and restrict your access to the Site (or part thereof) without prejudice to any other rights or remedies that Citywire may have if Citywire is of the reasonable opinion that you have breached these Terms or acted inconsistently with the spirit of these Terms. The provisions concerning Intellectual Property Rights, The Site, Contributions, Non-Reliance, Limited Warranty, Liability, Breaches; Term and Termination, Enforcing Security, Governing Law, Arbitration, Injunctive Relief, Waiver and Severability and Entire Agreement the Solution Feedback, Confidentiality, will survive the termination of these Terms and Conditions for any reason. 13.2 You agree to indemnify Citywire against any and all actions, claims, costs, proceedings, losses, damages or liabilities arising from your use of the Site or App (including without limitation Contributions or Content) and/or in relation to any information or data you use or access by means of the Site. 13.3 You acknowledge that a breach of these Terms may give rise to civil damages and criminal penalties. Citywire reserve the right to take action against you to uphold these Terms and its rights, which may involve pursuing injunctive proceedings, as further set forth below. 14. Enforcing Security You may not use the Site, App, Content or any of Citywire’s data, systems, network, or services to engage in, foster, or promote illegal, abusive, or irresponsible behavior, including, without limitation, accessing or using data, systems, or networks in an unauthorized manner, attempting to probe, scan, or test the vulnerability of a Citywire system or network, circumventing any Citywire security or authentication measures, monitoring Citywire data or traffic, interfering with any Citywire services, collecting or using from the Site email addresses, screen names, or other identifiers, collecting or using from the Site information without the consent of the owner or licensor, using any false, misleading, or deceptive TCP-IP packet header information, using the Site to distribute software or tools that gather information, distributing advertisements, or engaging in conduct that it likely to result in retaliation against Citywire or its data, systems, or network. Actual or attempted unauthorized use of the Site may result in criminal and/or civil prosecution, including, without limitation, punishment under the Computer Fraud and Abuse Act of 1986 under U.S. federal law. Citywire reserves the right to view, monitor, and record activity through the Site without notice or permission from you. Any information obtained by monitoring, reviewing, or recording is subject to review by law enforcement organizations in connection with investigation or prosecution of possible criminal or unlawful activity through the Site as well as to disclosures required by or under applicable law or related government agency actions. Citywire will also comply with all court orders or subpoenas involving requests for such information. In addition to the foregoing, Citywire reserves the right to, at any time and without notice, modify, update, suspend, terminate, or interrupt operation of or access to the Site, or any portion of the Site in order to protect Citywire. 15. Governing Law; Void Where Prohibited All offers for all functions, products or services, which are made on the Site, are void if they are prohibited by applicable law. You access the Site on your own volition and are responsible for compliance with all applicable laws with respect to your own access and use of the Site and its offerings. These Terms have been made in and will be construed and enforced in accordance with the laws of the State of New York, U.S.A. as applied to agreements entered into and completely performed in the State of New York (without effect to its conflicts of law provisions). 16. Arbitration Subject to the right of Citywire to seek injunctive relief, disputes will be will be resolved by binding, individual arbitration under the American Arbitration Association pursuant to its Commercial Arbitration Rules or pursuant to its International Centre for Dispute Resolution (ICDR) Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having competent jurisdiction thereof. There is no judge or jury in arbitration, and court review of an arbitration award is limited. For any arbitration, the arbitrator(s) selected shall have a minimum of ten years of experience with and knowledge of the subject matter of the claim and dispute. The place of arbitration shall be in New York, New York. The arbitrator shall be bound by the provisions of these Terms and base the award on applicable law and judicial precedent. The arbitrator may award money or equitable relief in favor of only the individual party seeking relief and only to the extent necessary to provide relief warranted by that party’s individual claim. Similarly, an arbitration award and any judgment confirming it apply only to that specific case; it cannot be used in any other case except to enforce the award itself. However, the arbitrator(s) may award to the prevailing party all of its costs and fees. “Costs and fees” mean all reasonable pre-award expenses of the arbitration, including the arbitrator’s fees, administrative fees, travel expenses, out-of-pocket expenses such as copying and telephone, court costs, witness fees, and attorneys’ fees. Upon rendering a decision, the arbitrator(s) shall state in writing the basis for the decision, including the findings of fact and conclusions of law upon which the decision is based. The decision of the arbitrator(s) shall be final and binding upon the parties, and shall not be subject to appeal. You and Citywire have agreed to execute this Agreement in the English language, and all dispute settlement proceedings and communications, written and oral, between you and Citywire shall be conducted in the English language. 17. Injunctive Relief Notwithstanding the arbitration provision above, you acknowledge that any breach, threatened or actual, of these Terms, including, without limitation, with respect to unauthorized use of Citywire’s proprietary assets and especially, any Content, will cause irreparable injury to Citywire. Such injury would not be quantifiable in monetary damages and Citywire would not have an adequate remedy at law. You therefore agree that Citywire shall be entitled, in addition to other available remedies, to seek and be awarded an injunction or other appropriate equitable relief from a court of competent jurisdiction restraining any breach, threatened or actual, of your obligations under any provision of this Terms. Accordingly, you hereby waive any requirement that Citywire post any bond or other security in the event any injunctive or equitable relief is sought by or awarded to Citywire to enforce any provision of these Terms. 18. Waiver and Severability Failure to insist on strict performance of any of the terms and conditions of these Terms will not operate as a waiver of any subsequent default or failure of performance. No waiver by Citywire of any right under these Terms will be deemed to be either a waiver of any other right or provision or a waiver of that same right or provision at any other time. If any part of these Terms are determined to be invalid or unenforceable pursuant to applicable law including, but not limited to, the warranty disclaimers and the liability limitations set forth above, then the invalid or unenforceable provision will be deemed superseded by a valid, enforceable provision that most clearly matches the intent of the original provision and the remainder of these Terms shall continue in effect. 19. Notice; Consent to Electronic Communications When you visit this Site or send e-mails to us, you are communicating with us electronically. You consent to receive communications from us electronically. We will communicate with you by e-mail or by posting notices on this Site. You agree that all agreements, notices, disclosures and other communications that we provide to you electronically satisfy any legal requirement that such communications be in writing. 20. Entire Agreement You and Citywire are independent contractors. No joint venture, partnership, employment, or agency relationship exists between you and Citywire as a result of these Terms or your utilization of the Site. These Terms represents the entire agreement between you and Citywire with respect to your individual use of the Site. These Terms may not be assigned, transferred, conveyed, delegated, or granted by you to another party or person without the prior written consent of Citywire.
This communication is by Citywire Financial Publishers Ltd (“Citywire”) and is provided in Citywire’s capacity as financial journalists for general information and news purposes only. It is not (and is not intended to be) an any form of advice, recommendation, representation, endorsement or arrangement by Citywire or an invitation to invest or an offer to buy, sell, underwrite or subscribe for any particular investment. In particular, the information provided will not address your particular circumstances, objectives and attitude towards risk. Any opinions expressed by Citywire or its staff do not constitute a personal recommendation to you to buy, sell, underwrite or subscribe for any particular investment and should not be relied upon when making (or refraining from making) any investment decisions. In particular, the information and opinions provided by Citywire do not take into account your personal circumstances, objectives and attitude towards risk. Citywire uses information obtained primarily from sources believed to be reliable (such as company reports and financial reporting services) however Citywire cannot guarantee the accuracy of information provided, or that the information will be up-to-date or free from errors. Investors and prospective investors should not rely on any information or data provided by Citywire but should satisfy themselves of the accuracy and timeliness of any information or data before engaging in any investment activity. If in doubt about a particular investment decision an investor should consult a regulated investment advisor who specialises in that particular sector. Information includes but is not restricted to any video, article or guide content created or provided by Citywire. For your information we would like to draw your attention to the following general investment warnings: The price of shares and investments and the income associated with them can go down as well as up, and investors may not get back the amount they invested. The spread between the bid and offer prices of securities can be significant in volatile market conditions, especially for smaller companies. Realisation of small investments may be relatively costly. Some investments are not suitable for unsophisticated or non-professional investors. Appropriate independent advice should be obtained before making any such decision to buy, sell, underwrite or subscribe for any investment and should take into account your circumstances and attitude to risk. Past performance is not necessarily a guide to future performance.
Citywire Investment Warning
