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Allianz US High Yield - AM - HKD

ISIN: LU0648978533

Investment Objective:

The fund concentrates on high-yielding corporate bonds of companies that are domiciled in the U.S.A. Up to 20% of the fund's assets may be invested in securities that are denominated in currencies other than the US-dollar. The investment objective is long-term capital appreciation.

Fund manager:

Forsyth, Doug

Portfolio Highlights:

Buys/sells: New buys were primary and secondary market purchases including a chemicals producer and a building products supplier. Sales included a call in addition to an issue that was replaced with a more attrac-tive total return opportunity.


Primary considerations investors should be focused on: first, the default forecast; second, the Fed, US econo-my and dollar; and third, relative value. The default forecast is expected to continue to increase slightly, and it should remain at a low percentage level for 2016. Despite stress in select industries of the market, balance sheets, leverage ratios and interest coverage ratios continue to support an investment in the asset class. Furthermore, only 15% of the market matures before 2019. This amount is far lower than the average annual new issuance over the past five years. The Fed is expected to take a cautious approach toward monetary-policy adjustments. This outlook is found-ed on overseas economic concerns and the fallout from the UK's decision to exit the EU. Domestically, they have also cited the need to see evidence that job creation is recovering and that inflation is moving toward 2% before raising interest rates. Outside of the US, global monetary policy continues to be overwhelmingly accommodative, with policymakers using aggressive stimulus measures in Europe and in regions through-out Asia. Additionally, European monetary leaders have pledged further support post-Brexit. The economic paths of the UK and the EU are uncertain, but recent events are likely to weigh on the region's growth. In spite of these headwinds, the US economy should expand at a modest pace with GDP growth expected to pick up quarter-over-quarter. In the aftermath of the Brexit vote, the US dollar has strengthened and this development could hold down inflation and weigh on export growth. Although the regional and global implications of the UK's decision are unclear today, the months ahead should provide some clarity. Notably, in the past 30 years, the US has not fallen into recession, nor have high-yield spreads moved sub-stantially higher, without being preceded by an inverted yield curve. This fact lends further credibility to the notion that regulatory/technical pressures were key contributors to the sell-off, beyond commodity-related issues. Despite some recent flattening, which is arguably the result of overseas influences, rather than do-mestic factors, the steepness of the curve between the 3-month Treasury bill and the 10-year Treasury note remains. Until the Fed either moves more aggressively or is well into the tightening cycle, monetary policy should not be expected to drive an extended sell-off and spread-widening in high yield. The current spread of 510 basis points and a par-weighted average market price of $98.90 reflect a market that is still pricing in a higher-than-likely realized default rate. Separately, looking at past performance following a negative year in the high-yield market, the return for the asset class has been well above coupon. The only exception to this pattern came at the end of the tech bub-ble in 2000, and the market did not recover until after 2002. Back then, Media, Technology and Telecom composed more than 40% of the market versus the 20% combined exposure of Energy and Metals/Mining today. History has also shown that when high-yield bond spreads widen beyond 700 basis points, the forward 12-month and 24-month returns of the asset class are overwhelming favorable. Moreover, when spreads ex-ceed 800 basis points, an investor has never lost money in 42 instances on a two-year horizon, according to a market study. Only in one instance out of 42 has an investor lost more than 1% over the next 12 months. To put this analysis in context, spreads reached 887 basis points on Feb. 11 of this year. Relative value within the rating categories can be viewed as the composite of all of the factors expected to affect the market. Since the sharp rebound in the overall market, B-rated issuers offer the most attractive balance between return and risk without sacrificing the benefits of interest-rate diversification. CCC-rated bonds are the least compelling of the three credit-quality buckets due to their elevated exposure to default risk and significant recovery. It is prudent to be highly selective when choosing to invest within this subcate-gory. From an asset-class perspective, the relative value proposition of US high-yield bonds is clear. With US Treasuries and US investment-grade corporates yielding less than 1.6% and 3%, respectively, and approxi-mately $11 trillion worth of bonds globally yielding less than 0%, the 6.8% yield of the US high-yield market is a compelling opportunity for both international and domestic investors alike. Among fixed-income alternatives, high-yield bonds should return to their historical norm as a contributor from both a diversification and a relative-performance perspective. Interest rates will have a negligible im-pact on the high-yield market given the relative average spread and dollar market price today. The Fed path, earnings trends, commodity prices and global growth will all influence the outlook.


Fund price as of 10/25/16

Issue price: 8.42

Redemption price: 8.17

Type of fund: bond fund

Risk and Reward Indicator*: 4

Currency: HKD

Redemption price (previous day): 8.17

Deviation in %: 0.00

Interim profit: -

Equity gains EStG-investors in %: -

Equity gains KStG-investors in %: -

Annual high (10/13/16): 8.19

Annual low (2/16/16): 7.20

* For each fund a risk and reward indicator will be disclosed which will be calculated on the basis of the fund's volatility. The volatility describes how much the value of the fund went up and down in the past. Funds of categories 1 to 7 of the risk and reward profile have shown in the past a very low (category 1) up to a very high (category 7) volatility. The units of a fund of category 1 to 7 of the risk and reward profile might be subject to very low up to very high price fluctuations based on the historical volatilities observed.


Morningstar-Rating: ** (2)

Feri-Rating: E

Performance data in %

Date: 9/30/16

1 year: 7.61

3 years: 3.54

3 years annualised: 1.17

5 years: 25.74

5 years annualised: 4.69

10 years: -

10 years annualised: -

Since inception: 23.05

Since inception annualised: 4.13

Volatility in %

Date: 9/30/16

3 years: 6.51

5 years: 6.24

Basis of calculation for performance: Unit value (not including front-end loads); Distributions reinvested. Average annual performance is calculated by distributing the total performance of a period, taking into account the compound interest effect, evenly across each respective year.

Past performance is not a guide to future returns.

Source: IDS GmbH


+ Particular yield potential of high-yielding corporate bonds
+ Capital gains opportunities on declining market yields
+ Currency gains against investor currency possible in unhedged unit classes
+ Broad diversification across individual securities
+ Possible extra returns through single security analysis and active management


+ Bonds suffer price declines on rising interest rates
+ High-yielding corporate bonds entail above-average risk of volatility, illiquid markets and capital loss. The fund unit price may be subject to sharply increased volatility.
+ Currency losses against investor currency possible in unhedged unit classes
+ Limited participation in the potential of individual securities
+ No guarantee that single security analysis and active management will be successful