HEAD-TO-HEAD: Blackrock versus Pimco

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Source: FE Fundinfo. Three-year cumulative returns in US dollars.

PERFORMANCE

The Blackrock fund has generated a 16.4% three-year cumulative return, underperforming its JPMorgan Asia Credit Index (Jaci) benchmark, according to FE Fundinfo.

However, “the strategy has delivered admirable peer-relative results under Seth’s leadership,” said Ge.

Between 1 August 2012 and 31 July 2020, the clean share class beat 90% of Asian bond Morningstar category peers, he noted.

“Consistent with the process, credit selection was the biggest positive contributor, followed by positive effects from hard- and local-currency rates and foreign exchange,” said Ge.

The fund had a strong 2019 showing, returning 11.31%, which outpaced the Jaci by 47 basis points, but then it took a dive in March 2020 amid the Covid-19 sell-off, but it has since recovered its losses.

A shift from an underweight to overweight in Philippines and Thailand investment-grade names in March and April added value, while an overweight in Indonesia and Indian investment grade names detracted, according to Ge.

Annualised volatility of 6.4% has been historically higher than the index, which can be attributed to the portfolio’s off-benchmark bets.

“Nonetheless, these off-benchmark plays have added value over the longer term,” said Ge.

The Pimco fund has a superior three-year cumulative performance, achieving 19.8% over the period and beating its Jaci benchmark by 140 basis points, according to FE Fundinfo.

Chang took over the strategy from his predecessor in May 2018 and delivered strong results under the previous benchmark-conscious mandate.

What’s more, Chang achieved these results while maintaining portfolio volatility (5.1%) that was about 1.42% lower than the peer median, according to Ge.

As a result, risk-adjusted returns (as measured by an information ratio of 0.7) were impressive and outpaced most of its peers, FE Fundinfo data shows.

Moreover, “the portfolio held up better than the average Asia bond fund during the 2020 coronavirus-driven sell-off as Chang de-risked the portfolio in March 2020,” said Ge.

“That said, the record prior to the August 2020 restructuring of the is less relevant now,” he added.

Nevertheless, primary alpha drivers for the revamped strategy will continue to be bottom-up focused, with credit selection expected to account for 60%-85% of returns, sector allocation to account for 10%- 25%, and 0-10% split among duration management, yield curve positioning, foreign exchange management, and country exposure, according to Ge.

Investors should be mindful of the fund’s exposure to junk (sub-investment grade bonds), even though it can boost performance during market upturns.

“This is consistent with the income-focused mandate but can contribute to heightened volatility against peers during periods of market stress,” said Ge.

Discrete calendar year performance

Source: FE Fundinfo. Returns in US dollars.

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