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Global Short Duration strategy: The rally resumes despite the re-imposition of national lockdowns

  • 11 November 2020 (5 min read)

Key points

  • Credit spreads tightened, supported by strong technicals
  • Sharp increases in coronavirus infections led to the re-imposition of national lockdowns
  • We kept the risk profile broadly stable

What’s happening?

Despite renewed national lockdowns, particularly in Europe, the prospect of a contested US election, and the lack of progress on a new stimulus package in the US, credit spreads still tightened supported by strong technicals.

The European Central Bank, which again held interest rates steady, hinted that it could provide further monetary policy support before the end of this year.

US treasuries significantly underperformed in October, with yields sharply rising, as the market started to price in a Democratic sweep which would lead to higher levels of fiscal stimulus. While UK gilt yields rose slightly driven by US treasury yields, German bund yields fell due to the reintroduction of national lockdown measures.

Portfolio positioning and performance

Sovereign: We remained invested in short-dated US treasury inflation-linked bonds due to attractive valuations.

Investment Grade: We continued to gradually reduce our bias towards investment grade in the Fund, this time in order to raise some cash ahead of the US elections. We were still active in secondary markets.

High Yield and Emerging Markets: We kept our exposure to high yield and emerging markets broadly stable during the month as we participated in only one European high yield new issue. Due to the gradual re-risking undertaken since late March, we now have a 36% allocation to high yield and emerging markets - up from 19% at the end of February.


With the world’s economy not experiencing a ‘V-shaped’ recovery, in our opinion, but rather a ‘swoosh’ one, policy and fiscal support remain paramount particularly since the fourth quarter is expected to be softer.

As such, with valuations back to early March levels, we’ve paused the re-risking of the Fund as the outlook remains uncertain with a potentially contested US election, renewed national lockdowns in Europe to contain the second wave of coronavirus that could become stricter and/or be extended, and heightened ‘no-deal’ Brexit risk.

No assurance can be given that the Global Short Duration strategy will be successful. Investors can lose some or all of their capital invested. The Global Short Duration strategy is subject to risks including credit risk, liquidity risk and interest rate risk and counterparty risk. The strategy is also subject to derivatives and leverage, emerging markets and global investment risks.

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