Pure Group: Sensitivity of selected high-yield funds to macro factors
The chart data shows the sensitivity of the five largest global high-yield funds to changes in economic factors: default spreads, term spreads, interest rates and inflation. IPE and PureGroup selected from the largest domestic and cross-border institutional funds (dollar share class) registered for sale in UK, in terms of assets, from the Morningstar database.
The selected funds are:
• ACM Bernstein Global High Yield
• Goldman Sachs Global High Yield
• JPMorgan Global High Yield Bond
• Robeco High Yield Bonds
• NN Global High Yield.
The higher the sensitivity of each fund to the macro factor, the higher the probability that performance will respond to changes in that factor. The graphs show the sensitivity of the funds to the factors, while the bottom bar charts show the monthly year-on-year change of the factors over the past five years. The data was analysed using PureGroup’s Forward Perspective Model, a macroeconomic factor model built for the investment industry, covering open-end, closed-end and exchange-traded products. The model analyses an investment product’s positioning.
Global default spread
Default spread can be used to indicate periods of increased shorter-term market risk and equity market underperformance, as well as an adjustment in the pricing of risk.
Looking at the sensitivity of the peer group, we can see that ACM Bernstein and Robeco funds bear significant positive sensitivities. They would therefore benefit from an expansion in Global default risk, with the ACM Bernstein fund having a more significant impact. The Goldman and JPMorgan funds, while positively sensitive, have a more neutral position so any contribution to their performance would be limited. Conversely, the NN Investment Partners fund would benefit in the opposite cycle, when there is a contraction in global default risk.
Global term spread
Global term spreads are the difference between long-dated and short-dated government bonds and is a good measure of long-term pricing of risk and changes in economic cycles. All of the funds show a significant negative sensitivity to global term spreads. They would, therefore, see a positive contribution to their performance in periods when there is a contraction in the factor. Given the significance of the sensitivity, we would expect that JPMorgan and NN Investment Partners funds would have the greatest impact as this factor contracts. The Robeco fund would have the lowest relative contribution to its performance.
Global interest rates
Central bank intervention has led toa sustained period of artificially suppressed interest rates. While certainly not behind us, there are many economies with signs that normalisation is starting to occur. If we look at the impact of changes in global short-term interest rates we can see that that ACM Bernstein, Goldman and Robeco would benefit in markets where global interest rates are falling. On the opposite side is the NN Investment Partners fund, which would benefit from an increase in global interest rates.
After a sustained period of deflation globally, particularly in developed economies, in part the result of reduced energy prices, we are moving to a period of renewed inflation.
The JP Morgan fund has a consistent positive sensitivity to increases in inflation, meaning that rising inflation contributes positively to its performance. The ACM Bernstein, Goldman and NN Investment Partners funds have a negative sensitivity to inflation. As such they would experience a positive contribution to performance during deflationary cycles.
A secondary observation is that while most of the peer group have maintained consistent sensitivities over the past 12 months, the NN Partners fund has changed from a positive sensitivity to a negative sensitivity. This would indicate a change in sector allocation, which is also noticeable in the changes to other factors.
Patrick Murphy, director, PureGroup puregroup.io/academic-research