Performance Review 2006Johnny Debuysscher: "Since the beginning of the year, the fund lost 0.02% versus –0.25% for the benchmark.
After the strong increase of our duration from March, we have been decreasing it since August to be slightly shorter than our benchmark in September, neutral level in October and significantly shorter in November. "
Performance Review 2007
Johnny Debuysscher: "For European government bonds, the year 2007 can be divided into two clearly defined periods: a first semester characterized by a rise in interest rates followed by a fall since the summer. This resulted in the poor performance of Petercam Bonds EUR in the period leading up to the summer holidays. In the second half of the year the sub-fund benefited from the general “flight-to-quality”. In 2007, the net asset value of the accumulation shares rose from EUR 52.36 to EUR 53.39, a return of 2%.
The sub-fund started 2007 in a defensive manner, with a duration clearly shorter than that of the JP Morgan Government EMU index. The 10-year German government bond yield reached 4.25% in April, after which securities with longer maturities were purchased in order to take a more neutral position. As bond yields kept rising, we continued to buy bonds with longer maturities. Following the first wave of panic in the summer we gradually shortened the duration in order to end the year in a relatively neutral position. As to the positioning on the yield curve, we preferred to opt for medium-term maturities, which in the course of 2007 turned out to be beneficial."
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Performance Review 2008
Carl Vermassen: "In 2008, Petercam Bonds EUR rose by 8.5%, which is slightly less than the JP Morgan EMU Government Bond index (+9.3% in 2008). The explanation for this lies in the sub-fund’s preference for the smaller countries to the detriment of Germany. The flight to quality that dominated the bond market for nearly the whole year was now manifesting itself in the Eurozone too. This led to a sharp rise in spreads with Germany. The rise was the greatest for smaller countries such as Belgium, Greece and Portugal. Furthermore, the sub-fund had invested about 8% in inflation-linked bonds, which in the second half of the year were suffering under the growing fear of deflation. Just as in past years, the manager was pursuing an active duration policy. The sub-fund started the year with a duration shorter than the benchmark. In the second quarter the manager profited from the temporary rise in government bond yields to make the duration longer than the benchmark. In the second half of the year, the duration gradually became shorter. As regards positioning on the yield curve, the portfolio evolved from an overweight position in maturities between 5 and 10 years to a more neutral positioning compared to the benchmark. This was done via the purchase of bonds with long maturities in the second quarter. In terms of country allocation, in the last quarter the manager reduced the weighting of Germany, in view of the very sharp fall in interest rates on German government paper, to the benefit of Spain, which previously had been underweighted compared to the benchmark. Furthermore, in November the fund manager subscribed to a new issue by Luxembourg and the European Union."
Performance Review 2009
Carl Vermassen: "The net asset value of the accumulation shares (class B) rose by 4.61% in 2009 compared to a gain of 4.33% for the JPM EMU Government Bond index. During the first quarter, the sub-fund performed in line with its benchmark. In the second and third quarter the sub-fund strongly outperformed its benchmark thanks to its overweight in smaller countries like Greece, Portugal and Ireland which benefited from a significant decline in spreads (yield differences with Germany). Moreover, the fund had lengthened the duration in the second quarter and had invested more in bonds with very long maturities. This was a good decision, during the summer months bond yields dropped and bond with very long maturities achieved strong performances. In the fourth quarter however, he lost a part of his excess return, mainly due to the overweight in Greece, which as from November had to cope with a very strong spread widening. The overweight in bonds with long maturties also had a negative impact on the relative performance because of the yield curve steepening in the last months of the year. In the first quarter, the fund manager gradually increased the credit risk and sold the position in inflation-linked bonds. The main change in the second quarter was the lengthening of the duration. In May, the buying limit was exceeded (3.50% for the 10-year German bond yield). Since then, the fund manager has gradually been buying and has extended the duration. At the end of June, the duration was about 5% longer than the benchmark. New purchases were mainly concentrated in bonds with maturities around 20 years and issued by higher quality countries like Germany, the Netherlands and France, after the strong relative performance of the lower quality countries. In the third quarter, the fund again gradually reduced the duration and further increased the credit quality. He reduced the exposure to Ireland and significantly increased the weight of Germany. Towards the end of the fourth quarter, the fund manager gradually increased the weight of Greece. To counterbalance the increase of our position in Greece, he reduced the position in Spain and further increased the weighting of Germany. He also progressively increased the duration. At the end of December, the duration equals 6.48 years compared to 6.37 years for the JPM EMU Government Bond index. Finally, we mention that the fund manager actively participated to the many opportunities offered on the primary market during the entire year."
Performance Review 2010
Carl Vermassen: "The net asset value of the accumulation shares (class B) rose by 0.74% in 2010 compared to 1.17% for the JPM EMU Government Bond index. The underperformance of the sub-fund is mainly attributable to the geographic allocation and more precisely the overweight position in Greece which was maintained during the entire year. The negative impact was partly compensated by the good policy in terms of duration and yield curve positioning. The fund manager had opted for a slight overweight of Greece to the detriment of the other peripheral countries. In his search for extra yield he added some bonds issued by supra-nationals institutions to the portfolio, for example the European Investment Bank (EIB) and the European Community. In terms of yield curve positioning he adopted a Barbell strategy since the beginning of 2010 by giving preference to the ends of the curve (bonds with short and long maturities) in anticipation of a flattening of the yield curve. At the beginning of the year, the sub-fund had a slighter longer duration than the index. The fund manager has shortened the duration during the first quarter to slightly below the index level by selling German government bonds. In the course of the second quarter, the manager raised the weighting of Portugal from underweighted to neutral. The manager also bought more in Italy, which was still underweighted in the portfolio. By contrast, he reduced the exposure to German and French government bonds, which he thought had become too expensive. The weighting of Greece remained practically stable. The manager did sell several long-term bonds, replacing them with short-term debt securities: he believes that the risk of a restructuring of Greek government debt will not set in for another 1 or 2 years. Lastly, he further increased the weighting of bonds of supranational institutions (European Investment Bank and Germany’s KfW). In the third quarter, the fund manager took profit on the position in bonds issued by supra-nationals institutions and by the Flemish Region to invest in the new Belgian government bond with maturity date in 2016, which he bought on a weakness. During the fourth quarter, the fund manager did make some minor changes in the country allocation. In November, just before the agreement on Ireland’s rescue package, we slightly reduced the weighting of Portugal in favour of Ireland. However, the announcement of the agreement did not have the desired positive effect, due to fear of political instability and the still not restored confidence in the Irish financial sector. At the beginning of December, the rescue package was approved by the Irish parliament and Ireland was one of the best performing countries within the euro zone in December. As from October, bonds yields have started to rise. This prompted the fund manager to gradually lengthen the duration to almost the same level as the benchmark by replacing short-term German bonds by German bonds with maturities of between 6 and 8 years. As regards positioning on the yield curve, he has progressively scaled back the Barbell strategy, that is to say the overweighted positions in short and long maturities. In November he sold his position in a bond of the European Investment Bank, in order to free up space for the imminent issue of the EFSF (European Financial Stabilisation Facility). Finally, in November he bought a small position in inflation-linked government bonds of Italy and Germany which were attractively valued at that moment and which had a positive impact on the sub-fund’s relative performance thanks to the increase in break-even levels."
Performance 2011 - Year-to-Date
Carl Vermassen: "In the first quarter, the net asset value of the accumulation shares (class B) declined from EUR 61.03 to EUR 60.47. The sub-fund resisted slightly better than the JPM EMU Government Bond index. Especially in January, the sub-fund outperformed the index thanks to its overweight in Greece. In February and March, the sub-fund performed almost in line with the index. Given the further increase in government bond yields the fund manager gradually lengthened the duration to more than 6% above the duration of the JPM EMU Government Bond index. In terms of yield curve positioning, he progressively scaled back the Barbell strategy (overweight in short-term and long-term bonds) to evolve to an overweight in the middle of the yield curve (maturities between 5 and 10 years). At the end of last year he had bought a small position in inflation-linked bonds of France and Germany, which were very attractively valued at that moment and which significantly outperformed nominal government bonds. During the first quarter, he gradually sold the position in inflation-linked bonds. After the publication of the conclusions of the European Summit of March 24-25, the fund manager shared the concern of the market regarding the seniority of the bonds issued by the ESM (European Stability Mechanism) to existing domestic bonds. Consequently, he decided to reduce the credit risk, particularly going neutral in Italy and underweight in Spain. The weighting of Germany was significantly increased. He maintained the credit risk in terms of agencies fully guaranteed by respective states such as KfW in Germany and FADE in Spain. The exposure to Greece remained almost stable, but the manager switched from bonds maturing in 2014 to bonds maturing in 2016. Finally, he increased the weighting of Slovenia and bought a first position in Slovakia since both countries are showing good economic performances.In the second quarter, the net asset value of the accumulation shares (class B) increased from EUR 60.47 to EUR 60.80. The sub-fund slightly underperformed the JPM EMU Government Bond index. Opting for a longer duration and the overweighting in the middle of the yield curve had a positive impact on relative performance, as did the overweight position in Germany and the underweighted position in Spain and Portugal, but the overweight position in Greece cancelled this out. In May, the manager completely sold his position in Portugal. In June, he also slightly reduced the still slightly overweight position of Ireland to neutral relative to the index.In June, he gradually started to reduce his overweight position in the middle of the yield curve. He did this mainly through the sale of French and German bonds with maturities of around 10 years. In their place, he bought bonds with longer maturities. For the short end, his preference went to inflation-linked bonds issued by Germany and Italy. In late June, about 5% of the portfolio was invested in short-term inflation-linked bonds."
Performance since 2006
Investment Process and Strategy – How does the Fund Manager invest?
Carl Vermassen: "The investment philosophy is based on 4 pillars:
• Active management in terms of duration, yield curve positioning and country allocation
• Preference for value: search for undervalued bonds and attractive yield
• Contrarian approach
• Risk reward driven approach."
Carl Vermassen: "At present, it is difficult to predict which direction the market will take. Consequently, the manager tended to opt for a more neutral positioning. In this way, he decreased the overweighted position in the middle of the yield curve, but it is probably still a little too early to switch to a Barbell strategy (overweighted position in short and long maturities). As regards country allocation, he is keeping a slightly overweighted position in Greece. To compensate, the portfolio is neutral or underweighted in the other peripheral countries."