SICAV

US Aggregate Bond Fund

Seeks to extract return from a broad spectrum of US debt securities.

ISIN LU0181329318 WKN A0CAFC

3YR Return Annualised
(View Total Returns)

Total Assets
(USD)

4.71%
$430.3m

1YR Return
(View Total Returns)

Manager Tenure

7.36%
9yrs

Information Ratio
(5 Years)

Tracking Error
(5 Years)

-0.23
1.58%

Inception Date 07-Jun-2011

Performance figures calculated in USD

Other Literature

30-Jun-2020 - Brian J. Brennan, Portfolio Manager,
Bouts of volatility should provide opportunities, particularly with the view that we will be transitioning into a classic early-cycle growth environment as 2021 approaches. Spreads remain attractive from a long-run perspective, and fiscal and monetary policy continue to support a low volatility environment. Credit markets are recovering at different speeds, and we expect the more cyclical parts of the market, along with sectors and securities that were affected more by the virus, to recover significantly next year.
Brian Brennan
Brian Brennan, Portfolio Manager

Brian Brennan is a portfolio manager in the Fixed Income Division at T. Rowe Price. Mr. Brennan has lead portfolio management responsibilities for the US Treasury, US Core Plus Bond, and Stable Value Strategies. He also is a member of the portfolio strategy team for T. Rowe Price's core and core plus mandates. Mr. Brennan is a vice president of T. Rowe Price Group, Inc., T. Rowe Price Associates, Inc., T. Rowe Price International Ltd, and T. Rowe Price Trust Company.

Click for Manager Outlook
 

Strategy

Manager's Outlook

The economy and markets appear to have moved from a crisis phase into a more typical recessionary phase. As the economy reopens in phases, we expect a slow, steady recovery in the second half of 2020 into 2021. While some recent growth data have surprised to the upside, this recovery phase will likely be less linear going forward as the primary risk becomes the long tail of the lockdown and associated solvency risk. Fiscal risk will also move to the forefront as the current emergency provisions enacted by Congress must soon be extended to address consumer and small business solvency. Fiscal policy uncertainty is likely to be resolved, particularly in an election year, but not without causing volatility.

While the fiscal debate plays out, monetary policy can largely work in the background with the appropriate forward guidance. The combination of fiscal and monetary support can help the economy weather a potential second wave of the virus, as there is now a better understanding of virus risks and progress toward a vaccine.

Fed policymakers have repeatedly stated that they want to keep interest rates low as we work through this unprecedented economic recession and will likely keep policies focused on expanding the balance sheet in place for the foreseeable future to shore up financial markets. The Fed has also made repeated references to wanting to see inflation persistently higher before reengaging with rate hikes, suggesting to us that policy will likely remain accommodative longer than expected.

With short-term rates held near zero, we also expect that longer-term yields, especially the 30-year tenor, will be more responsive to economic activity and inflation expectations, meaning that as lockdowns unwind and virus concerns abate, we could see yields in this area of the curve rising faster relative to the short end. Fiscal expansion likely will continue into the next presidential term regardless of the administration. But, clearly, volatility can work in both directions; although we expect longer-term yields to rise in line with better economic data, this could also be where we see the most potential for a response if we hit another bout of economic turbulence, so we remain cautious.

Risks around the outlook and market narrative are now more balanced than they were earlier in the second quarter. Bouts of volatility should provide opportunities, particularly with the view that we will transition into a classic early-cycle growth environment as 2021 approaches. Spreads remain attractive from a long-run perspective, and fiscal and monetary policy continue to support an overall low volatility environment. Credit markets are recovering at different speeds, and we expect the more cyclical parts of the market along with sectors and securities that were impacted more by the virus to experience significant recoveries alongside the economy into 2021.

As the economy exits recession and begins to recover, we intend to focus on a combination of those positions that still offer high-risk premiums (e.g., CMBS, ABS, and certain corporate subsectors) and classic early-cycle sectors, such as longer-duration IG corporates. In terms of interest rate management, we plan to position for a steeper curve but keep duration tactically around neutral until the midcycle phase, when Fed rate hikes may start to come into view.

Investment Objective

To maximise the value of its shares through both growth in the value of, and income from, its investments. The fund invests mainly in a diversified portfolio of US bonds.

Investment Approach

  • Focused primarily on investment-grade, U.S. fixed income securities.
  • Integrate proprietary credit and capital market research to identify market inefficiencies.
  • Add value primarily through sector rotation, individual security selection, and term structure position.
  • Exploit market inefficiencies through opportunistic trading conducted by specialist teams.
  • Seek to exceed benchmark return by at least 50 basis points annually over a 3 to 5 year period.

Portfolio Construction

  • Duration is managed within +/- 20% of benchmark
  • Sector exposure will typically range +/- 25% of the benchmark
  • Average credit quality of the portfolio is AA- or better
  • Tracking Error should range between 0.5% to 1.0% in most market environments

Performance (Class I)

Annualised Performance

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % 7.36% 4.71% 3.93% 3.43%
Indicative Benchmark % 8.74% 5.32% 4.30% 3.73%
Excess Return % -1.38% -0.61% -0.37% -0.30%

Inception Date 07-Jun-2011

Indicative Benchmark: Bloomberg Barclays U.S. Aggregate Bond Index

Data as of  30-Jun-2020

Performance figures calculated in USD

  1 YR 3 YR
Annualised
5 YR
Annualised
Since Inception
Annualised
Fund % 7.36% 4.71% 3.93% 3.43%
Indicative Benchmark % 8.74% 5.32% 4.30% 3.73%
Excess Return % -1.38% -0.61% -0.37% -0.30%

Inception Date 07-Jun-2011

Indicative Benchmark: Bloomberg Barclays U.S. Aggregate Bond Index

Data as of  30-Jun-2020

Performance figures calculated in USD

Recent Performance

  Month to DateData as of 05-Aug-2020 Quarter to DateData as of 05-Aug-2020 Year to DateData as of 05-Aug-2020 1 MonthData as of 30-Jun-2020 3 MonthsData as of 30-Jun-2020
Fund % 0.29% 1.69% 6.40% 1.72% 5.11%
Indicative Benchmark % 0.06% 1.55% 7.79% 0.63% 2.90%
Excess Return % 0.23% 0.14% -1.39% 1.09% 2.21%

Inception Date 07-Jun-2011

Indicative Benchmark: Bloomberg Barclays U.S. Aggregate Bond Index

Indicative Benchmark: Bloomberg Barclays U.S. Aggregate Bond Index

Performance figures calculated in USD

Past performance is not a reliable indicator of future performance.  Source for fund performance: T. Rowe Price. Fund performance is calculated using the official NAV with dividends reinvested, if any. The value of an investment and any income from it can go down as well as up. Investors may get back less than the amount invested. It will be affected by changes in the exchange rate between the base currency of the fund and the subscription currency, if different. Sales charges (up to a maximum of 5% for the A Class), taxes and other locally applied costs have not been deducted and if applicable, they will reduce the performance figures. 

Where the base currency of the fund differs from the share class currency, exchange rate movements may affect returns.

30-Jun-2020 - Brian J. Brennan, Portfolio Manager,
The investment-grade U.S. fixed income market produced positive performance in June as credit sectors widely outperformed U.S. Treasuries. Within the portfolio, our overweight position in investment-grade corporate bonds, along with an underweight in U.S. Treasuries, contributed significantly to relative performance. Along with steady demand, the corporate bond market also reacted favourably to the U.S. Federal Reserve's announcement that it will begin buying a basket of individual corporate bonds and shift away from its purchases of exchange-traded funds. Security selection within the corporate sector was also helpful. Exposure to select credits related to commercial real estate, aircraft, and other spaces adversely affected by coronavirus lockdowns rebounded and contributed in June. Credit selection within asset-backed securities was beneficial as our off-benchmark allocations in securitisation deals from a car rental agency added to returns amid gradual easing of quarantine measures. Any negative effects were mostly limited to our overweight position in agency mortgage-backed securities as the sector underperformed the broad index.

Holdings

Issuers

Top
Issuers
10
Top 10 Issuers 9.41% Was (31-May-2020) 9.17%
Other View Top 10 Issuers

Monthly data as of 30-Jun-2020

Holdings

Total
Holdings
1028
Largest Holding U.S. Treasury Bonds 3.37% Was (31-Mar-2020) 3.57%
Top 10 Holdings 12.68%
Other View Full Holdings Quarterly data as of 30-Jun-2020

Quality Rating View quality analysis

  Largest Overweight Largest Underweight
Quality Rating BBB US Treasury
By % 15.10% -27.16%
Fund 28.94% 10.37%
Indicative Benchmark 13.84% 37.53%

Average Credit Quality

AA-

Monthly Data as of 30-Jun-2020
Indicative Benchmark:  Bloomberg Barclays U.S. Aggregate Bond Index

Sources for Credit Quality Diversification: Moody's Investors Service and Standard & Poor's (S&P) split ratings (i.e. BB/B and B/CCC) are assigned when the Moody's and S&P ratings differ. Short-Term holdings are not rated.

Maturity View maturity analysis

  Largest Overweight Largest Underweight
Maturity 0-1 Years 3-5 Years
By % 4.54% -10.52%
Fund 4.54% 22.42%
Indicative Benchmark 0.00% 32.94%

Weighted Average Maturity

9.19 Years

Monthly Data as of 30-Jun-2020
Indicative Benchmark:  Bloomberg Barclays U.S. Aggregate Bond Index

Duration View duration analysis

  Largest Overweight Largest Underweight
Duration Under 1 Year 1-3 Years
By % 6.89% -12.32%
Fund 12.43% 21.41%
Indicative Benchmark 5.54% 33.73%

Weighted Average Duration

6.03 Years

Monthly Data as of 30-Jun-2020
Indicative Benchmark:  Bloomberg Barclays U.S. Aggregate Bond Index

30-Jun-2020 - Brian J. Brennan, Portfolio Manager,

As the positive effects of the massive injections of monetary and fiscal stimulus started to take shape over the quarter, we shifted to a more neutral overall duration positioning. We believe a neutral duration posture is appropriate with Treasury yields vacillating in a tight range.

Added to IG corporate bonds

As the volatility eased in the corporate sector near the beginning of the quarter, we became more active in the IG corporate new issue market and added to the portfolio's corporate allocation and rotated some exposure away from emerging market corporates. We worked closely with our analysts to ensure that what we hold in the portfolio has more upside potential in a stronger recovery scenario and less downside if the economic recovery stalls. The Fed's purchase program in the corporate sector should help mitigate any spread widening.

Emerging markets (EM) allocations have been a source of funds for the rotation into IG corporate credit. We believe that IG corporates offer better fundamentals than EM credit and should benefit more from direct central bank support.

Within corporates, we are overweight in sectors where we believe spreads may have room to recover, such as real estate investment trusts and energy.

Maintained securitized allocation

The portfolio's exposure to securitized debt remained relatively steady over the quarter. However, we worked actively in collaboration with our analysts to identify and eliminate positions where we had credit concerns in the wake of the recession.

Sectors

Total
Sectors
7
Largest Sector Corporate 39.73% Was (31-May-2020) 39.70%
Other View complete Sector Diversification

Monthly Data as of 30-Jun-2020

Indicative Benchmark: Bloomberg Barclays U.S. Aggregate Bond Index

Largest Overweight

Corporate
By12.18%
Fund 39.73%
Indicative Benchmark 27.56%

Largest Underweight

U.S. Treasury
By-27.16%
Fund 10.37%
Indicative Benchmark 37.53%

Monthly Data as of 30-Jun-2020

30-Jun-2020 - Brian J. Brennan, Portfolio Manager,
While we kept sector allocations roughly unchanged, we added slightly to the portfolio’s target allocation for investment-grade corporate bonds at the end of June. With Treasury yields vacillating in a tight range, we ended the month with a neutral duration posture relative to the benchmark.

Countries

Total
Countries
30
Largest Country United States 84.89% Was (31-May-2020) 81.62%
Other View complete Country Diversification

Monthly Data as of 30-Jun-2020

Indicative Benchmark: Bloomberg Barclays U.S. Aggregate Bond Index

Largest Overweight

United Kingdom
By1.83%
Fund 3.07%
Indicative Benchmark 1.24%

Largest Underweight

United States
By-6.86%
Fund 84.89%
Indicative Benchmark 91.74%

Monthly Data as of 30-Jun-2020

Team (As of 05-Aug-2020)

Brian Brennan

Brian Brennan is a portfolio manager in the Fixed Income Division at T. Rowe Price. Mr. Brennan has lead portfolio management responsibilities for the US Treasury, US Core Plus Bond, and Stable Value Strategies. He also is a member of the portfolio strategy team for T. Rowe Price's core and core plus mandates. Mr. Brennan is a vice president of T. Rowe Price Group, Inc., T. Rowe Price Associates, Inc., T. Rowe Price International Ltd, and T. Rowe Price Trust Company.

Mr. Brennan has 33 years of investment experience, 19 of which have been at T. Rowe Price. Prior to joining T. Rowe Price in 2000, he was a fixed income manager with Howard Hughes Medical Institute, responsible for Treasury, emerging, nondollar, and derivative strategies for core plus. Mr. Brennan began his career at CIGNA Investments, Inc., as a portfolio analyst for immunized and indexed fixed income accounts.

Mr. Brennan earned a B.S. in economics and computer sciences and an M.A. in economics from Trinity College in Hartford, Connecticut. He also earned the Chartered Financial Analyst (CFA) designation and is a former president and treasurer of the Baltimore CFA Society.

  • Fund manager
    since
    2011
  • Years at
    T. Rowe Price
    19
  • Years investment
    experience
    34

Fee Schedule

Share Class Minimum Initial Investment and Holding Amount (USD) Minimum Subsequent Investment (USD) Minimum Redemption Amount (USD) Sales Charge (up to) Investment Management Fee (up to) Ongoing Charges
Class I $2,500,000 $100,000 $0 0.00% 40 basis points 0.48%
Class Jd $10,000,000 $0 $0 0.00% 0 basis points 0.04%
Class Sd $10,000,000 $0 $0 0.00% 0 basis points 0.10%

Please note that the Ongoing Charges figure is inclusive of the Investment Management Fee and is charged per annum.

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GIPS® Information

T. Rowe Price ("TRP") claims compliance with the Global Investment Performance Standards (GIPS®). TRP has been independently verified for the twenty one- year period ended June 30, 2017 by KPMG LLP. The verification report is available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm's policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation.

TRP is a U.S. investment management firm with various investment advisers registered with the U.S. Securities and Exchange Commission, the U.K. Financial Conduct Authority, and other regulatory bodies in various countries and holds itself out as such to potential clients for GIPS purposes. TRP further defines itself under GIPS as a discretionary investment manager providing services primarily to institutional clients with regard to various mandates, which include U.S, international, and global strategies but excluding the services of the Private Asset Management group.

A complete list and description of all of the Firm's composites and/or a presentation that adheres to the GIPS® standards are available upon request. Additional information regarding the firm's policies and procedures for calculating and reporting performance results is available upon request

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