Aberdeen Std Absolute Return Glbl Bd Str (ETL0134AU) Report & Performance

The Fund underperformed its benchmark, mostly due to stock selection in A rated bonds. On the whole, bank holdings struggled, amid wider concerns about the sector, including Bank of America and Citigroup. Aerospace and defence contractor Lockheed Martin also lagged.

On the upside, the property sector rebounded from recent underperformance, as our holdings of CBRE and Sirius outperformed. Deutsche Bank, Société Générale, NatWest and Deutsche Bank were also beneficial.

In the primary market, we bought attractive euro new issue bonds, including the 2026 and 2030 bonds of Sika and the 2026 bonds of BPCE. In US dollars, we bought Morgan Stanley’s new 2029 bonds, Wells Fargo’s 2034 bonds and Walmart’s 2053 bonds. In the secondary market, we topped up Truist, one of the better quality US regional banks, which was available at a good price following turmoil in the banking sector. On the sell side, we sold the recently issued MetLife 2030 bond, to reduce risk in insurers. We also sold down Boston Scientific. The company is weighing an acquisition of Shockwave Medical, which could be detrimental to debt investors.

The Fund outperformed its benchmark in March, owing to good performance from BBB rated bonds.

Amid turmoil in the banking system, our bank holdings performed well. We had no exposure to Silicon Valley Bank (SVB), and benefited from positioning in Bank of America, Citigroup and Wells Fargo. Deutsche Telekom also outperformed. On the downside, property holdings were among the detractors, including LEG, Sirius and CBRE.

In the primary market, we bought attractive new issue bonds including the 2033 US dollar bonds of Medtronic, the 2033 US dollar bonds of General Mills, the 2053 sterling bonds of Engie and the 2031 and 2028 euro dual issue from Anglo American.

In the secondary market, we added the bonds of US insurer Prudential, a conviction name which cheapened up amid the wider weakness in financials. We switched telecommunications holdings from Comcast to Charter, as we considered our Comcast holdings to be fully valued. We also sold our long-dated Salesforce bonds, as the firm has announced large stock buybacks which could hurt bondholders.

The Fund outperformed its benchmark in January, owing to good stock selection and positioning in A and BBB rated bonds. Bank holdings performed well over the period. In particular, Barclays, Bank of America and Société Générale performed well. In the property sector, holdings in Sunac and Sirius outperformed. On the downside, our US Treasury holdings underperformed in risk-on conditions. We have zero exposure to Aroundtown, which rebounded from recent underperformance. An overweight in Volkswagen also weighed on returns. In the primary market, we bought the attractive euro new issue 2028 bonds of BPCE.

In US dollars, we bought the 2034 bonds of PNC Financial and the 2038 bonds of Morgan Stanley. In the utilities sector, we bought Engie’s 2035 and 2043 euro bonds as well as the corporate hybrids of EDP. In the secondary market, we bought the euro 2034 green bonds of EDF, which are more attractive than EDF’s new issue bonds. On the sell side, we sold American Tower’s 2027 and 2028 bonds to reduce risk in light of a rumoured acquisition of Cellnex. We reduced our overweight in T-Mobile and reduced our holding in General Motors.

Fund underperformed its benchmark in December, due to our holdings in single A rated bonds. Energy and utility companies underperformed, including Dominion Energy. US banks Citigroup and Bank of America also lagged. Conversely, Barclays was beneficial. Property holdings continued to outperform, including Sirius, Sunac and Shimao. In December, we bought attractive new euro bank bonds, including the 2029 issue from TD Bank and the senior non-preferred 2030 bonds of Société Générale. In US dollars, we bought the 2033 bonds of Energy Transfer, which has attractive newissue pricing. In the secondary market, we bought a long-dated bond from Amgen, which has been weak following news of its acquisition of Horizon Therapeutics. We also topped up US insurer Centene, which is well priced in its peer group and we see good upside potential. We selectively reduced our euro bank holdings, including BNP Paribas, to raise cash for attractive new issues. We also exited casino owner Vici Properties, taking profits after strong performance.

The Fund outperformed its benchmark in October, thanks to an overweight holding of BBB rated bonds and an underweight holding of A rated bonds. The Fund’s top performer was General Electric. Long-dated holdings performed well over the month, including T-Mobile and UnitedHealth Group. Conversely, property bonds were the biggest detractors over the month. Notably Chinese issuers Sunac and Shimao lagged, as did European companies CTP, Sirius, CBRE and Cromwell. However, this was partially offset by positive returns from having zero exposure to Aroundtown. In October, we bought the attractive new euro 2032 dual issue from Pernod Ricard, as well as a 2042 issue from Germany’s national railway Deutsche Bahn. In US dollars, we bought UnitedHealth’s 2028 and 2053 new issue, Marsh & Mclennan’s 2052 bonds and American Express’ 2027 bond. In the secondary market, we topped up our conviction overweights, including Viatris. We shortened duration in Barclays, switching out of some of our 2029 bonds into attractively priced 2028 bonds. On the sell side, we sold Dell, as we are growing concerned about the outlook for the technology sector.

The abrdn Absolute Return Global Bond Strategies Fund returned -0.19% after fees during the month. The benchmark Bloomberg AusBond Bank Bill Index returned 0.15%.

During September, our short corporate risk positions and exposure to currencies that are more defensive in nature performed well. Our favoured defensive foreign exchange (FX) position was the largest positive contributor.

However, this positive performance was more than offset by negative performance from our interest rates and yield-curve steepener trades. The hit ratio for this month was 47%, but the positions in rates outweighed the positive performance. The US interest rates position was the biggest detractor because of the hawkish rhetoric surrounding the Fed. It emphasised its commitment to lowering inflation by whatever means necessary, which led to an aggressive sell-off in US bonds. Within both the corporate bond and interest rates space, we have implemented more relative value strategies due to economic idiosyncrasies emerging from a divergence in the speed at which hawkish monetary policy is being executed across regions. We have continued to diversify our exposure to interest rates in-line with our long-term outlook and to mitigate the impact of shortterm swings in momentum. Strategies such as the Australian versus US interest rates position have benefited from this line of thinking.

However, we have closed this position during September as the upside return expectation of the strategy had been met. The market is now pricing in a lower terminal rate for Australia than the US, in a reversal of the previous position. This mispricing was one of the main premises for the idea. We increased our short corporate bond exposure through high yield bonds as recessionary fears continued to accelerate and company earnings forecasts began to see downgrades. Given recent volatility in the bond market, we reduced our exposure to US interest rates, European real yields and our sterling yield-curve steepener. We increased our favoured defensive FX basket, which is somewhat seen as a way to play the low growth story

This means the portfolio’s sensitivity to interest rates has slightly fallen. Meanwhile, the sensitivity and correlation to corporate risk remains negative.