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Confused about asset allocation for MAN GLG Strategic Bond

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poto
poto Posts: 28 Forumite
Part of the Furniture 10 Posts Combo Breaker Name Dropper
edited 3 May 2020 at 7:29PM in Savings & investments
Hi everyone,
I am a bit confused about the asset allocation for the MAN GLG Strategic Bond I GBP (IE00BGT6GR91); can someone shed any light for me, please?
I am not sure about the following points:
  1. Long bond Allocation > 100%? Is that possible? How?
  2. What does being short on bond actually mean? That 54.76% of bonds have been borrowed and sold already, with the obligation of buying those back (maybe at a lower price) in the future?
  3. Where is the cash deriving from those short-sales? In the cash asset allocation?
  4. Will\Must the above cash be used to buy those bonds back?
  5. What does the "other" asset class include?
Attached is the snapshot of the asset allocation fro the fund from Morningstar, thanks in advance for your answers.

Comments

  • poto
    poto Posts: 28 Forumite
    Part of the Furniture 10 Posts Combo Breaker Name Dropper
    A gentle hint.... hope you can clarify this for me, thanks.
  • Linton
    Linton Posts: 18,154 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Hung up my suit!
    My understanding is very limited but after a bit of research: Man GLG Strategic Bond uses futures.  Negative allocations can arise from futures contracts.  But the total must be 100%, and so other things must exceed 100%. There is what seems to be a straightforward description here.

    Hopefully someone who knows more than me can explain further.
  • bowlhead99
    bowlhead99 Posts: 12,295 Forumite
    Part of the Furniture 10,000 Posts Name Dropper Post of the Month
    edited 4 May 2020 at 12:01PM
    poto said:

    I am not sure about the following points:
    1. Long bond Allocation > 100%? Is that possible? How?
    2. What does being short on bond actually mean? That 54.76% of bonds have been borrowed and sold already, with the obligation of buying those back (maybe at a lower price) in the future?
    3. Where is the cash deriving from those short-sales? In the cash asset allocation?
    4. Will\Must the above cash be used to buy those bonds back?
    5. What does the "other" asset class include?
    1) If you have some assets and liabilities, or long positions and short positions, making up your net assets... then the gross assets can be greater than 100% of the net assets. 

    2) Yes, being short is when you are effectively betting on the price or total return of a particular asset or class of assets going down rather than up. So for example pulling some info from their March factsheet, if they are conservative on duration and do not see much return offered by US government bonds, they may be short across US 10- and 30-year futures, while being long on sub-investment grade corporate bonds, and perhaps holding a lot of ultra-liquid cash equivalents such as short-dated US treasuries to provide the portfolio with flexibility at a time when there are opportunities to add things they consider undervalued.

    3) If it has been received in cash it will be in cash, unless it has been reinvested into something else liquid instead. 

    4) If/when they want to close out a short trade they do not necessarily need to use the specific bits of cash they have right now, because they can generate other cash by selling other things if they no longer want those other things. They will hope that the cash they need to spend to close the short trades will be less than the cash that was originally generated from the short sales, which is how they aim to make profits or avoid losses from that particular part of the bond market.

    5) Could me a mix of things from currency contracts to credit default swaps or other credit hedges, or perhaps bonds without credit ratings if the other main categories only show bonds with a rating rather than unrated ones. How the portfolio is split between categories depends on the captions available on the software or sector reporting tool being used by the information service provider that's building the report. Whatever it is, if it has a value but isn't classified within another main category, it will need to drop into the 'other' category so that the total can add to 100% of the portfolio.

    You will find that a lot of strategic bond funds use a variety of bond types and strategic or tactical allocations to take exposure to the credit markets from time to time, and will not simply hold 'a little bit of everything', because their investors want them to take a view on the best way to protect and/or grow capital and income where possible. The manager admitted in their March market commentary that they were disappointed in delivering a poor performance driven by the unfolding effect of Covid-19 on the markets where some moves were made too soon or some government responses were not as anticipated.


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