Three Questions Every Bond Investor
Should Ask Now.
The bond market is at a turning point -- years of coordinated global quantitative easing have resulted in a low-yield environment that creates challenges for fixed-income investors.
Traditional "one-size-fits-all" approaches of the past may not provide the investment benefits going forward that many investors have come to expect. U.S. fixed income1 currently offers nearly 25% less yield and carries 34% more interest rate risk than only 6 years ago.
1. Source: FactSet, based on total market capitalizations across the foreign and U.S. fixed income markets as tracked by the Barclays indices as of 6/30/15.
Source: Barclays, June 2015. *Duration is a measure of interest rate sensitivity. The higher the duration, the more sensitive a fund/portfolio is to interest rate movements. Past performance is no guarantee of future results. Yields and spreads fluctuate. Views current as of date of this presentation and subject to change rapidly as market conditions evolve.
Monetary policies are varied.
Growth prospects are diverging.
With nearly 60%1 of today's bond investments coming from outside the U.S., the advantage goes to funds with a global reach to tap more diversified sources of investment opportunity and interest rate exposure.
Divergent economic growth trajectories are in motion across the globe, along with differing central bank policy action, which may result in a wide dispersion of returns. While the US is embarking on a rate normalization cycle, countries that represent over 50% of world GDP2 are still in the middle of their own quantitative easing programs or rate cutting cycles. A global core fixed income allocation opens the opportunity set to capitalize on this trend. With the U.S. currently on the lower end of the return spectrum, a global approach can offer the potential for greater yield capture and total return. But the complexity of today's global bond marketplace calls for an experienced team in the decision-making process.
1. Source: Barclays, as of 12/31/14.
2. Source: IMF growth expectations as of June 2015; Policy easers in 2015 as at Sep 1, 2015.
The outlook for emerging markets economics and currencies is also challenged by recent setbacks in China and Brazil along with rising geopolitical risk in the Middle East. While these assets and currencies may offer attractive current yield and returns, there may be more volatility in store for this sector as global growth remains subdued. In particular, China's "hard/soft" landing may suppress growth, particularly in emerging markets and currencies for the foreseeable future.
Both high yield credit and emerging markets have relatively high correlations to equities (0.78 and 0.73, respectively, as of 10/13/154) which could work against investors as we enter a period of heightened market volatility. In particular, credit risk is expected to pick up as defaults start to happen in energy/oil sector, which could further spread into other high yield sectors.
Additionally, as extremely large bond funds search for opportunities in smaller, more lightly traded sectors of the fixed income markets, these funds need to take substantial ownership positions in the market to capture meaningful exposure. These large positions may involve additional risks when they become difficult to unwind quickly, particularly in the case of a selloff.
1. Source: Morningstar.
Dreyfus/Standish Global Fixed Income Fund
|Global as the
bond by bond
|Agility and investment conviction|
Morningstar Overall Rating™ for Class I shares among 316 funds in the World Bond category as of 09/30/15. Ratings reflect risk-adjusted performance, and are derived from a weighted average of the fund's 3-, 5-, and 10-year (as applicable) ratings. As of 09/30/15 the fund received 5, 5, and 5 stars for the 3-, 5-, and 10-year periods out of 316, 236 and 137 funds in the category. Past performance is no guarantee of future results. Other share classes may have different ratings.*
A global bond fund that seeks to maximize total return while realizing a market level of income that's consistent with preserving principal and liquidity. SDGIX has delivered positive calendar-year performance for the past 15 years.
|AVERAGE ANNUAL TOTAL RETURNS (09/30/15)|
|Share Class||1 yr||3 yr||5 yr||10 yr|
|Class A (NAV)||1.60%||2.97%||3.54%||.73%|
|Class A (4.5% Max Load)||-2.99%||1.39%||2.59%||5.25%|
|Barclays Global Aggregate (Hedged) Index||3.14%||4.04%||3.51%||4.42%|
*Past performance is no guarantee of future results.