Monthly Investment Commentary (PDF)

Goldman Sachs
Growth & Emerging Markets Debt Local Fund
Investment commentary
Month to 30 November 2014
Total returns as at 30 November 2014
Growth & Emerging Markets Debt Local Fund†
JPM GBI-EM Global Diversified Index A$
Excess return after fees (Growth & Emerging Markets Debt Local
Fund vs. JPM GBI-EM Global Diversified Index A$)
1 mth
%
3 mths
%
6 mths
%
1yr
%
Since
inception
% p.a. *
2.02
1.64
0.38
3.42
4.23
-0.81
3.25
4.14
-0.89
5.26
6.72
-1.46
3.98
5.71
-1.73
All returns shown above are based on Australian dollar figures.
Past performance does not guarantee future results, which may vary. The total net fund returns shown are prepared on an exit to exit basis (i.e. they include all ongoing fees and
expenses and assume reinvestment of all distributions). They do not take personal taxation into account.
*
Fund Inception: February 2013.
†
Please note that the Goldman Sachs Growth & Emerging Markets Debt Local Fund (‘the Fund’) is an Australian domiciled registered managed investment scheme which pools the money of individual
investors. The Fund is substantially invested in shares of the Goldman Sachs Growth & Emerging Markets Debt Local Portfolio (‘SICAV Portfolio’), a separate investment portfolio of the Goldman Sachs Funds
SICAV (‘SICAV’) which is an undertaking for collective investment organised under the laws of the Grand Duchy of Luxembourg and established as an ‘umbrella fund’ comprised of a number of portfolios.
Goldman Sachs Asset Management International (‘GSAMI’) has been appointed by the board of directors of the SICAV to manage the assets of the SICAV Portfolio. In turn, GSAMI may delegate any of its
obligations as the manager of the assets of the SICAV Portfolio to any of its affiliates (collectively, ‘GSAM’), and appoint any other third party as an adviser on behalf of the SICAV. References in this document
to the underlying assets or investments of the Fund generally relate to the assets held in the SICAV Portfolio.
Market review†
The JPMorgan GBI-EM Global Diversified Index (unhedged, in
Australian dollars) returned 1.64% for the month ending
30 November 2014. Constituent countries’ performance was split,
with eight of the 16 countries in the index posting negative returns
in November. On a monthly total return basis, Turkey (4.07%),
South Africa (2.49%), and Hungary (1.85%) were the top local debt
performers, while Russia (-14.57%), Nigeria (-9.01%), and Colombia
(-5.99%) were the worst performers among the index constituents
for the second consecutive month.
Turkey continued to perform well in November after also being the
top performing country in October. The performance has been
driven by the local rates component while currency appreciation
versus the US dollar also contributed albeit to a smaller extent.
Turkey, which imports roughly 90% of its oil needs, continued to
benefit from falling international oil prices. Brent crude has fallen to
its lowest level since July 2009, following a decision from the
Organization of Petroleum Exporting Countries (OPEC) to maintain
output at current levels. November CPI inflation remained high at
9.2% year over year reflecting the period of strong sequential
inflation earlier this year. Momentum in both headline and core
inflation, however, continued to decline. October also saw the first,
albeit tentative, signs of a fall in net energy imports. The print came
in at $3.7 bn, down from $4.2 bn in September, however, still
lagging the fall in the oil price.
Russia was the worst performing country in the JPM GBI-EM
Global Diversified Index in November for the second consecutive
month. Performance was driven primarily by the depreciation of the
ruble versus the US dollar (-12.52%) and a smaller negative
contribution from local rates (-2.05%). The decline in oil prices has
continued to pressure the ruble, despite the Central Bank’s
interventions. OPEC’s decision not to cut production has led to
another leg down for the currency. Additionally, recent rhetoric from
President Putin has had a negative impact on the market as he
called for measures against foreign exchange speculators,
suggesting the possibility for currency and capital controls. Inflation
accelerated further in November, driven by the currency passthrough effect as well as the impact from the continued food import
ban. Headline inflation printed at 9.1% year over year, up from
8.3% in October. Furthermore, Russia’s Ministry of Economic
Development has revised down its economic growth forecast for
2015 and now estimates gross domestic product shrinking by 0.8%
next year, while it had previously estimated a 1.2% growth.
Portfolio positioning and outlook†
After a strong start, Emerging Market (EM) local currency debt has
been buffeted by a surging US dollar and declining commodity
prices. The latter have suffered in part on the back of the same
greenback strength, and in part on excess supply in various
commodities (e.g., wheat, soy, corn). As numerous EM countries are
commodity exporters, the move has pressured their Terms of Trade,
erasing some of the recent reduction in current account deficits.
Despite the moves, we do not believe EM is due for a repeat of the
sell-off that occurred on the back of the mid-2013 ‘Taper Tantrum’,
when many investors questioned the attractiveness of EM bond
markets in view of higher US rates. This prompted a dramatic repricing both in the rate and currency markets of numerous EM
markets, with the so-called ‘Fragile Five’ countries (Brazil, India,
Indonesia, South Africa, Turkey – those with current account and
capital account deficits) experiencing the brunt of the weakness.
Some of the same countries – namely Brazil, Indonesia and South
Africa -- were among the worst currency performers in September
2014. However, South Africa and Indonesia re-bounded strongly in
October.
Inevitably, the correction in EM yield and depreciation in EM
currencies reflect an adjustment. While the currency move has
extended into 2014 among some EM countries, the drop in EM
currencies should ultimately buffer EM economies – the short-term
impact should help improve the Balance of Payments, while the
longer-term impact could actually make exports more competitive
and reinforce the growth trajectory. While EM may experience some
correlation to US and Developed Market rates, low inflation readings
and the meaningful adjustment since 2013 suggest EM rates remain
at reasonable valuations.
On the EM currency side, we see opportunities in numerous
long/short pairs (e.g., long Turkish lira, Indian rupee, Hungarian
forint/short Chinese yuan, Brazilian real, Colombian peso). As always,
the liquidity of EM currencies allows us to adjust our positions
quickly should markets turn.
AVAILABLE TO AUSTRALIAN RESIDENT INVESTORS ONLY.
Any mention of an investment decision is intended only to illustrate our investment approach or strategy,
and is not indicative of the performance of our strategy as a whole. Any such illustration is not necessarily representative of other investment decisions.
Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. The
economic and market forecasts presented herein are based on proprietary models for informational purposes as of the date of this presentation. There can be no
assurance that the forecasts will be achieved. Please see additional disclosures at the end of this presentation.
Past performance does not guarantee future results, which may vary.
Our overall positioning is designed to express two key themes.
Firstly, an expected recovery in the US is expressed by an
underweight position in South Korean and Malaysian local rates.
Asian curves are very flat, and are not pricing in significant growth
whereas we expect Asia to benefit from improving US growth and
capital expenditure. We also hold a long position in the Mexican
peso, as the country is implementing broad reforms that should be
positive for growth, and proximity to the US should provide
increased demand for Mexican goods and services. Secondly, we
see value where we believe there are idiosyncratic mispricings in the
market. As such we hold overweight position in Brazilian rates,
where we believe yield curve is too steep relative to fundamentals.
Key statistics†
Portfolio Benchmark Difference
Number of holdings
Number of countries
Average credit quality
230
34
BBB
200
16
BBB+
30
18
NA
Portfolio Benchmark
%
%
Active
%
Regional allocation†
North America
Central & Eastern Europe
Middle East/Africa
Latin America
Western Europe
Asia
Cash
11.47
35.79
13.26
27.84
-6.89
16.96
1.58
0.00
33.35
11.78
29.59
0.00
25.27
0.00
11.47
2.44
1.47
-1.75
-6.89
-8.32
1.58
Portfolio Benchmark
%§
%
Active
%
Credit deviation from benchmark†
AAA
AA
A
BBB
BB
B
CCC and below
Not rated#
Cash^**
Derivatives^***
5.80
0.50
33.31
43.89
3.11
2.03
0.26
10.61
1.58
-1.10
0.00
0.11
38.44
59.67
1.78
0.00
0.00
0.00
0.00
0.00
5.80
0.40
-5.13
-15.78
1.33
2.03
0.26
10.61
1.58
-1.10
#
Non-Rated (NR) includes holdings of securities not rated by any major rating agency. Unrated securities
held in the fund may be of higher, lower, or comparable credit quality.
^
This figure includes interest rate swaps. Swaps may be used for hedging purposes and/or to express
outright investment views. The table’s market value percentage total for derivatives reflects aggregated
unrealized gains or losses on positions.
**
Cash may include local currency, foreign currency, short-term investment funds, bank acceptances,
commercial paper, margin, repurchase agreements, time deposits, variable-rate demand notes, and/or money
market mutual funds. The Cash category may show a negative market value percentage as a result of a) the
timing of trade date versus settlement date transactions and/or b) the portfolio’s derivative investments,
which are collateralized by the portfolio’s available cash and securities.
^***
Derivatives may be used for hedging purposes and/or to express outright investment views. The table’s
market value percentage total for derivatives reflects aggregated unrealized gains or losses on positions.
##
Swaps may be used for hedging purposes and/or to express outright investment views. The table’s market
value percentage total for derivatives reflects aggregated unrealized gains or losses on positions.
§
The SICAV fund has not been rated by an independent rating agency. The credit allocation provided above
refers to the SICAV fund’s underlying portfolio securities. GSAM may receive credit quality ratings on the
Fund’s underlying securities from the three major rating agencies - S&P, Moody’s and Fitch. GSAM develops
the credit quality breakdown by taking the highest rating if more than one agency rates a security. GSAM will
use a single rating if that is the only one available. Securities that are not rated by all three agencies are
reflected as such in the breakdown. GSAM converts all ratings to the equivalent S&P major rating category
when illustrating the SICAV fund’s credit rating breakdown. Ratings and portfolio credit quality may change
over time. Unrated securities do not necessarily indicate low quality, and for such securities the investment
adviser will evaluate the credit quality.
Features
Investment objective
Benchmark
Fund inception
Fund size
APIR codes
Estimated management
cost
Distribution frequency
Platform availability
The Fund seeks to achieve income and
capital growth over the longer term through
exposure to fixed-income securities of
emerging country issuers, denominated in
the local currency of such countries.
JPM GBI-EM Global Diversified Index in
Australian dollars (A$)
February 2013
A$48.32 million as at 30 November 2014
JBW0094AU
0.85% p.a§§
Annually
Asgard
BT Wrap
Applications and contacts
Investment into the Goldman Sachs Growth & Emerging Markets Debt Local Fund can be made by Australian resident investors only.
Website
www.gsam.com/australia
Fund Services team
1800 034 494
[email protected]
Source: Goldman Sachs Asset Management. This material is provided at your request for informational purposes only. It is not an offer or solicitation to buy or sell any securities.
§§ Fees are based on the net asset value of the Fund (excluding deductions for accrued management fees and expense recoveries). Management fees and expense recoveries are calculate daily and are charged to the
Fund or SICAV Portfolio before determining the Fund’s Unit prices. Management fees and expense recoveries are paid quarterly by the Fund following the end of each quarter. Please refer to the Fund PDS for more
information.
Past performance does not guarantee future results, which may vary. The value of investments and the income derived from investments will fluctuate and can go down as well as up.
A loss of principal may occur.
References to indices, benchmarks or other measures of relative market performance over a specified period of time are provided for your information only and do not imply that the portfolio will achieve similar results. The
index composition may not reflect the manner in which a portfolio is constructed. While an adviser seeks to design a portfolio which reflects appropriate risk and return features, portfolio characteristics may deviate from
those of the benchmark.
Index Benchmarks
Indices are unmanaged. The figures for the index reflect the reinvestment of all income or dividends, as applicable, but do not reflect the deduction of any fees or expenses which would reduce returns. Investors cannot
invest directly in indices.
The indices referenced herein have been selected because they are well known, easily recognized by investors, and reflect those indices that the Investment Manager believes, in part based on industry practice, provide a
suitable benchmark against which to evaluate the investment or broader market described herein. The exclusion of “failed” or closed hedge funds may mean that each index overstates the performance of hedge funds
generally.
Emerging markets securities may be less liquid and more volatile and are subject to a number of additional risks, including but not limited to currency fluctuations and political instability.
Economic and market forecasts presented herein reflect a series of assumptions and judgments as of the date of this presentation and are subject to change without notice. These forecasts do not take into account the
specific investment objectives, restrictions, tax and financial situation or other needs of any specific client. Actual data will vary and may not be reflected here. These forecasts are subject to high levels of uncertainty that
may affect actual performance. Accordingly, these forecasts should be viewed as merely representative of a broad range of possible outcomes. These forecasts are estimated, based on assumptions, and are subject to
significant revision and may change materially as economic and market conditions change. Goldman Sachs has no obligation to provide updates or changes to these forecasts. Case studies and examples are for illustrative
purposes only.
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice. Views and opinions
expressed are for informational purposes only and do not constitute a recommendation by GSAM to buy, sell, or hold any security. Views and opinions are current as of the date of this presentation and may be subject to
change, they should not be construed as investment advice. The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk.
This material is distributed by Goldman Sachs Asset Management Australia Pty Ltd ABN 41 006 099 681, AFSL 228948 (‘GSAMA’) and is intended for viewing only by wholesale clients for the purposes of section 761G of
the Corporations Act 2001 (Cth). This document may not be distributed to retail clients in Australia (as that term is defined in the Corporations Act 2001 (Cth)) or to the general public. This document may not be reproduced
or distributed to any person without the prior written consent of GSAMA.
All units in the range of Goldman Sachs registered managed investment schemes in Australia (‘Funds’) are issued by Goldman Sachs Australia Managed Funds Limited ABN 63 005 885 567 AFSL 230251 (‘GSAMF’). Prior to
investing in any of the Funds you should obtain and consider the product disclosure statement (‘PDS’) for the relevant Fund, available by contacting our Fund Services team on 1800 034 494 or from our website
www.gs.com.au/funds.
This document contains general financial product advice only. In preparing this document, GSAMF did not take into account the investment objectives, financial situation and particular needs (‘financial circumstances’) of
any particular person. Accordingly, before acting on any advice contained in this document, you should assess whether the advice is appropriate in light of your own financial circumstances or contact your adviser.
GSAMF manages each of these funds and will receive fees as set out in the relevant PDS. This document has been prepared by GSAMF.
The currency market affords investors a substantial degree of leverage. This leverage presents the potential for substantial profits but also entails a high degree of risk including the risk that losses may be similarly
substantial. Such transactions are considered suitable only for investors who are experienced in transactions of that kind. Currency fluctuations will also affect the value of an investment.
The strategy may include the use of derivatives. Derivatives often involve a high degree of financial risk because a relatively small movement in the price of the underlying security or benchmark may result in a
disproportionately large movement in the price of the derivative and are not suitable for all investors. No representation regarding the suitability of these instruments and strategies for a particular investor is made.
This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions. It also pertains to past performance or is the basis for previously-made
discretionary investment decisions. This information should not be construed as a current recommendation, research or investment advice. It should not be assumed that investment decisions made in the future will be
profitable or will equal the performance of investments discussed in this document. Any mention of an investment decision is intended only to illustrate our investment approach or strategy, and is not indicative of the
performance of our strategy as a whole. Any such illustration is not necessarily representative of other investment decisions. A complete list of past recommendations may be available on request. Please see additional
disclosures.
This material has been prepared by GSAM and is not financial research or a product of Goldman Sachs Global Investment Research. It was not prepared in compliance with applicable provisions of law designed to
promote the independence of financial analysis and is not subject to a prohibition on trading following the distribution of financial research. The views and opinions expressed may differ from the views and opinions
expressed by Goldman Sachs Global Investment Research or other departments or divisions of Goldman Sachs and its affiliates. Investors are urged to consult with their financial advisors before buying or selling any
securities. This information should not be relied upon in making an investment decision. GSAM has no obligation to provide any updates or changes.
Portfolio Holdings may not be representative of current or future investments. The securities discussed may not represent all of the portfolio's holdings and may represent only a small percentage of the strategy’s portfolio
holdings. Future portfolio holdings may not be profitable.
The portfolio risk management process includes an effort to monitor and manage risk, but does not imply low risk.
Any reference to a specific company or security does not constitute a recommendation to buy, sell, hold or directly invest in the company or its securities. It should not be assumed that investment decisions made in the
future will be profitable or will equal the performance of the securities discussed in this document.
Views and opinions expressed are for informational purposes only and do not constitute a recommendation by GSAM to buy, sell, or hold any security. Views and opinions are current as of the date of this presentation and
may be subject to change, they should not be construed as investment advice.
Confidentiality: No part of this material may, without GSAM’s prior written consent, be (i) copied, photocopied or duplicated in any form, by any means, or (ii) distributed to any person that is not an employee, officer,
director, or authorized agent of the recipient.
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