Reflation has been the hot topic in the markets since the start of the year as inflation expectations have been rising rapidly on prospects of economic recovery. Meanwhile, a surge in commodity prices has exacerbated the boom, leading to higher yields in government bonds. What is the truth behind this narrative? How long will it last and what is the potential impact on the bond markets?

In this webcast, Jenna Barnard and John Pattullo dissect the reflation narrative, sharing their contrarian views on the subject – explaining why they do not see much substance to the reflation narrative beyond the short term. They will also discuss their asset allocation strategies since the start of the COVID crisis and what they intend to in the coming months.

Key takeaways:

• The reflation trade is not a big regime shift. Contrary to popular belief, the reflation trade began in March 2020 at the low of the cycle and lot of the expectations has been priced in since then.
• For reflation to be convincing we need to see evidence that households and businesses are changing their behaviour towards taking on more debt, yet credit demand remains soft.
• Another important element in global growth and inflation, and one that markets seem to be ignoring currently, is China. Whereas in the last crisis China’s rising credit impulse helped to reflate the global economy, this time they are more focused on their domestic conditions and rebalancing their economy.

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JF               Juan Fierro

JB               Jenna Barnard

JP               John Pattullo

AM             Amber Milam

MO             Moderator

 

00:00:05

MO             Hi, everyone. Thank you for joining us for today’s webcast hosted by Janus Henderson Investors. Today’s presentation is being recorded. If you experience connection issues at any time during this live webcast, we advise you to refresh your browser. I’ll now hand over the call to Juan Fierro with Janus Henderson Investors. Juan, you may begin.

JF               Good afternoon, good morning all, depending where in the world you are, and welcome to today’s live webcast on Janus Henderson Strategic Bond Fund. My name is Juan Fierro and I’m part of the distribution team here at Janus Henderson. I am joined today by product specialist, Amber Milam, and portfolio manager, Jenna Barnard and John Pattullo.

Before I hand you over to them, a couple of housekeeping things. First, this webcast is intended for clients only. If we have any journalists on the line, I kindly ask you to disconnect now and contact your local PR representative for any journalist-specific matters. Two, for those of you that have any questions, please use the Question tab to submit them. We will aim to answer all of your questions during the live webinar, but any unanswered questions, we will contact you after. So without any further ado, I’ll hand you over to Amber. Thank you.

JB               Hello. John and I are going to talk to you about this absolutely manic reflation trade that is washing through markets as we speak. And we’re going to give you our view on government bonds in particular, with a little section on credit at the end. But I would say that we are getting excited by the opportunity in duration in government bonds for the first time in about a year and a half. It was short duration throughout the second half of last year, but we feel this reflation trade is getting overdone.

00:01:55

So we have the long-term track record of the SICAV here, which obviously was launched in 2017 to replicate the OEIC. And we are very flexible. We initially made relative outperformance on duration at the beginning of this fund, then credit last year. And as I said, we think government bonds are getting very interesting once again. And I said that this reflation trade is manic, and it really is the biggest, perhaps most-hyped narrative about inflation that we have seen in our careers.

We put this slide together back in January, which is just a Google Trends slide. We updated it this morning. After February, it’s off the charts, up another level. But it’s not uncommon in Januaries to get a bit of excitement about growth and inflation when people write their year-ahead forecasts.

This year, you’ve got the confluence of vaccines, re-opening of economies, and a surge in commodity prices that I think has really exacerbated this boom, and the market is, I think, maniacally focused on the short term and the coming two quarters of recovery and, I think, losing perspective on the longer-term outlook for interest rates and growth and inflation, which to us doesn’t look particularly exciting.

And, oops, moving forward a slide, I should say that this is all very predictable. We use a very simple model on the desk which looks at the rate of change of economic data, which you can see here in orange for the US economy, both growth and inflation data, year on year. And we compare this to the level of ten-year Treasury yields. And you can do the same in different countries.

00:03:54

And when we looked at this last summer, we thought government bond yields were ridiculous. They looked artificially low relative to the recovery in the data. And we took duration in the portfolios that we run down to the lowest that we run them, which is about three and a half, four years. You’ll see that later.

And the bounce that we’re going to see based on the comps from March and April 2020, as I said, were completely predictable, and they should peak out around May of this year. So the rate of change of the data, the recovery or the bounce in the data should peak around May.

And it’s worth saying that in the US, you did have this re-opening trade in 2020, Q3. The third quarter for the US last year was very strong, which we see in the datarecovery in the orange line. So once we get through May, these base effects actually get quite challenging. And obviously the oil price was negative in April last year.

So we actually think that this whole re-opening, recovery, inflation story should peak out in the next couple of months. It’s very normal, post-recession, to get these kind of base effects. If you remember, back in 2010-2011, the UK got inflation up to 5.2%, the US got inflation up to about 4%, and even Europe got inflation up to 3% based on commodities and base effects. So it’s not a new phenomenon. It’s not unusual. And hence, central banks are talking about looking through this.

That gives you a sense of the base effects and the commodities surge. The market is expecting US headline inflation with commodities to peak at about 3% in the US and then fall into the end of this year to between 1.5% and 2%. So we’ll end the year in the US with actually quite modest headline inflation. In the UK and Europe, you’re talking about headline inflation getting up to 2%, maybe just a little bit above.

00:06:04

But this isn’t particularly frightening and, as I said, it’s very predictable. If we fast forward to next year, we’re going to have the opposite problem, which is the high inflation from this year is going to be a challenging base effect which will suppress headline inflation next year. And we’re also going to have a lot of chat about fiscal cliffs next year as well. So that’s what’s going on, as I’m sure you’re aware. It’s very predictable. You’ve read it in the newspapers.

But really, if we turn toand there’s the markets in orange, breakeven inflation measure in the US over five years. So markets tend to trade these inflation narratives very aggressively, get very hyped up about inflation and deflation. And then what we find is that both consumer expectations of inflation and professional survey expectations of inflation don’t move much. And that’s why we tend to find these kind of narratives and stories as opportunities to add duration.

And that’s the way that we approach government bonds. We are structural, long-term government bond bulls and we don’t think this is regime shift. It’s really only when you get the kind of frenzy we get today about inflation that you get the opportunity to buy longer-dated government bonds at attractive yield levels.

So that’s a basic recap of what’s going on. And I would say that the commodity price story actually now is beginning to look like a slight threat to growth and inflation over the very long term. Because remember, without wage increases, this kind of inflation squeezes consumer real incomes and is actually detrimental to growth.

00:07:57

So that is a brief recap of the short-term story. But sprinkled on top of that short-term story is, I think, some narratives about longer term inflation, that we may be at a regime shift here and that we may be at the beginning of a bigger turn in the inflation cycle. And you often see money supply charts being used to support that kind of narrative.

We are completely unconvinced about that narrative. We have an economist who just looks at money supply and has done for 30 years, so we’re very used to looking at money supply. And really, I think that story is naïve. We are becoming, on the other side, more concerned about the potential long-term disinflationary impact of the COVID crisis because the response that we are now seeing in the private sector is one of saving. Governments are spending a lot but households and corporates are paying down debt and saving. And so the government deficit is the flipside of the private sector surplus.

And you can see here how that’s developed, in blue, in the US. And this is commercial bank lending to corporates, in blue. And after that little surge in April, when there was a real desire and need for liquidity and companies borrowed at that time, we’re now seeing a paydown of the debt.

And as corporate bond investors in public bond markets, John and I are meeting numerous companies who, frankly, just want to pay down debt and also reduce their long-term leverage, companies like McDonald’s, Levi’s, Hospital Corporation of America, Smurfit Kappa. That seems to be the response from the corporate sector to this crisis. So there will be obviously a reopening and consumers will spend down some of their savings. But once that is done, I think the long-term repercussions of the COVID crisis could be quite disinflationary.

00:10:08

And on that consumer story and the consumer spending story, I think it’s really important to keep in mind that the extra savings that have accumulated for consumers during this crisis have been focused entirely in the upper income cohorts. So the poorest households have not saved. They’ve actually dis-saved. And you can see this broken down between different income quintiles for the UK on the left hand side and for the US on the right hand side.

And this really is the big debate for this year. Will the higher income households who have saved during the crisis spend that saving? Because the marginal propensity to consume for these high income cohorts is very, very low relative to the low income cohorts who tend to spend much more of the money that they do have. So this is really the important debate.

And the Bank of England actually did a survey that was in their Inflation Report. And they found that the average household that has saved money during the COVID crisis in the UK already had £50,000 in their current account. The average household that didn’t save during the COVID crisis in the UK had £1,000 in their current account. So, yes, when economies reopen, there will be spending and we will all do the things we’ve missed. But that spending may disappoint if these high income households decide to save the money or invest the money.

00:11:52

So we think, actually, beyond the next few months, when you get that inflation bounce and when you get the re-opening of economies, we actually think there is a reasonable chance that the bounce may disappoint and may not be as big as people think. And frankly, we think that this inflation narrative is beginning to look slightly unhinged. And with that, John, I’ll do the slides and maybe pass over to you.

JP               Thank you, Jenna, and hello, everybody. So, in addition to individuals and corporates arguably changing behaviours and deleveraging here, the good news was obviously, on the fiscal side, governments are borrowing those surpluses. But we’re just not convinced in a longer-term structural sense that there’s enough. There’s a net leakage, if you like, and hence are deflationary fears. And our shorter-term cyclical views also have to be put against our longer-term structural views.

Another impediment, we think, to a sustainable and persistent rise in growth and inflation is China. So this is a chart of the China credit impulse. And if you just look at the three impulses here, there’s the most recent one, there’s the one in 15/16 to the previous deflationary scare, and obviously the great financial crisis.

Now, China has a slightly different agenda this time. And I think the magnitude of this impulse is, frankly, a lot lower than the previous two. I think everyone would agree with that. And remember, back in 16, everyone was saying, oh, just look at the credit China multiple. It explains everything. Well, there’s been really no discussion of this point.

Secondly, China obviously came out of the COVID crisis. They were first in and they were first out. Currently, their financial conditions aren’t really loose at all. Their yield curve has actually flattened a bit and, of course, they have a strong currency. They have a different domestic agenda, more focused on rebalancing their economy. So it’s not really their job to reflate the world. As I say, they’ve got their own agenda. And currently, their CPI is actually quite weak as well. So we just don’t think you’re going to get a global reflation on this data born out of China.

00:14:07

And then moving on to this next chart, this shows the long-term duration management that Jenna and I have done for decades now. We are not scared to manage duration. It is quite taxing and it’s quite tough, to be brutally honest. You can see the normal range is roughly two to nine years in extreme. And you can see, in the spring of 2020, we actually got very aggressively long in quality investment grade and high yield bonds and long dated investment grade bonds and had duration up at 6.7 years, as you can see from the chart.

On the one occasion I’ve actually seen Jenna in person, which was I think late August, we had a meeting and we felt that credit spreads had come so far and absolute bond yields had come so far, and the economies were obviously turning with the better… With progress on the vaccine, and this was just ahead of the US election, that we decided to quite aggressively cut duration. And you can see we took roughly two or three years out in late August by selling those longest dated, best performing investment grade bonds.

And then, as the autumn wore on, we felt that we saw a turn, an inflection activity, compounded by the fantastic vaccine news, and the election, to be fair. And we shorted Treasuries and took duration to a year-end number of 3.7 years. And I think that set us up pretty well. And that’s exactly what we flagged last autumn.

And then moving on, as I’ll come onto in a minute, and journalists covered it in the reflation trade, most recently, as this euphoria about reflation and the move in break-evens and nominal yields were higher, we’ve been gradually fading back and adding back duration. We’re not scared to add it back. We think this is a cyclical, not a structural change. And as yields rise, you want to be buying more of them, not less. And that’s exactly what we’ve been doing. And I can illustrate that in a second as well.

00:16:09

But before that, just a brief word on credit spreads. This is US investment grade spreads, going way back to 96. To be brutally honest, we find this fairly uninspiring. In March of last year, credit spreads went from 1% over to a frightening 4% over, when Jenna and I frankly couldn’t believe our luck and bought very aggressively in new issue and secondaries.

But then the snapback, due to the massive fiscal and government action, really made credit spreads rally back very, very hard, which really was the story of April, all into year-end. And as you can see, currently, we don’t think they offer great value at all. They’re fairly uninspiring. In some ways, it’s almost late cycle in the credit spread, the credit market, strange that that may sound.

Just to put some context in that, even within high yield, the only action in the high yield market is currently the triple-C credits. So, year to date, triple-C credits have done roughly 4%. They make up roughly 10% of the market. But single-B and double-B credits have actually done less than 1%, year to date. And Jenna and my style is we don’t want to get sucked into value traps and structurally impaired businesses sniffing around for some sort of value trap which isn’t going to work.

We also think US default rates have peaked, which is good news, probably at about 6.5%. A lot of that was obviously in problem sectors such as retailing and energy, of course. And further good news is that there’s actually been no defaults in January or February of this year. So a lot of that government action and the market action has been pretty supportive to high yield. But as I say, we don’t find it particularly appealing and we’d generally be fading high yield and be fading the overlaid high yield strategy we had on the funds, as I can show you in this chart.

00:18:06

So this is the long-term asset allocation that Jenna and I have run for many years. And as you can see, firstly in the top right in blue, you can see that aggressive addition of investment grade we did into the spring, then the aggressive selling at great profits really into August and September, as the blue line comes down in the top right. We did then add to high yield during that period, and obviously, the balancing figure was the sovereign bonds.

But more importantly, in green, on the bottom right, we had up to an 18% net long credit risk position in iTRAXX Crossover, which is the main high yield derivative index, which worked very effectively for us, very liquid, very transparent, easy to trade. But we have basically been fading that and recently took it all off.

So at the margin, as you can gather, we’re sellers of credit and buyers of sovereign risk, because we think this reflation trade is broadly fully priced. And we find that pretty exciting, as Jenna explained, and we need to have some patience and perspective accordingly.

The fund currently, or the funds, are currently pretty much structured in large cap, quality, non-cyclical, global businesses. A lot of these are American-based, and you know we like them  by style; businesses with decent returns on capital, good equity cushions and good cash flows.

A lot are global businesses. Many are based in America, some are based in Europe, as you can see, but heavily into triple-B. And even the high yield book, which is fairly modest, is much more double-B than single-B, again in the large cap, consumer, non-cyclical names, communications and so on.

Duration, as Jenna said, at year-end, it was roughly 3.5. Today, it’s six-and-a-bit. And we’re increasing that slowly through time because we think some of these yields are really attractive. And frankly, we don’t think they’ve got much further to go. I know there’s a question come on on real yields and nominal yields, which we will answer in a second.

00:20:12

I might just skip this chart, but it just shows you some of the movements that we have done, and we’re pretty proud of that through time. Sometimes, you’ve got to move a little bit early but we are really closing short and now getting long, which makes a lot of sense.

So, to summarize, we always try and distinguish cyclical trades from structural trades. As Jenna explained, we very much expected this reflation narrative. We wrote about it last summer and, indeed, in December. It’s not really news to us. Maybe it’s news to some. But even Chairman Powell was talking about the enthusiasm for spending and the inflation enthusiasm running through markets at the minute.

We think it’s overhyped. You remember the long-term structural inflation numbers that Jenna and I spoke about. We’re probably more worried about a lack of growth and a lack of ongoing demand for credit in a long-term sense. Not the next three months, but in the long-term sense, very Japanese. And that echoes the Richard Koo workings that we’ve always talked about.

We do find it very hard to see a secular outbreak in inflation. You’d need to close the output gap, you’d need China to come onstream, you’d need an increase in the demand for credit, whereas currently, people want to put money in the bank, not take money out the bank. So very interesting things going on there. We think sovereign bonds are pretty much in the buy zone. This is getting pretty interesting for us in a number of countries. We have to bide our time a little bit, but certainly some of these valuations are pretty attractive compared to where we were.

As I said, we think best quality credit isn’t particularly appealing. We’re not shy to say that. We do expect some volatility spikes, going forwards. And then, we could use physical credit or credit derivatives to buy or sell exposure accordingly. And we did that well last year and we’ve done that well for many years.

00:22:06

And the final point is, obviously COVID has accelerated structural change. We all know that. Many industries have had to become more digital and less analogue. We very much subscribe that cyclical change can very much determine growth and value strategies, but structural change really separates winners from losers.

And there’s been a lot of winners in this crisis and there’s been many losers. We don’t think losers mean revert, we think they just go bust, and we’ve got no interest in lending to the bad businesses who haven’t embraced change and don’t reinvent themselves with the change that we’re experiencing.

And an example of that is very much we favour data centres instead of shopping centres. We always have. We favour Netflix instead of the old analogue AMC cinemas, for example. And the portfolio remains invested in quality credit. But as I say, at the margin, we’re just selling some high yield and some credit. Nothing particularly against the credit markets, just not great value. And there is a growing valuation opportunity in the sovereign bond markets going forwards. So, thank you. And we’ll pass it over to some questions.

JB               I think we might be reading the questions out, if that’s okay, John.

JP               Okay. Shall I ask you one?

JB               Right, go on, yes.

JP               Or is Amber…? No. Well, it’s actually a very good question, really. Just give me one second. It’s really the movement in the bond yields, where has it been? Has it been on the inflation side or the real side? And is it changing?

JB               Yes, it’s changing. That’s really important actually, what’s going on in the guts of the bond market. So through to about a week and a half ago, it was all driven by inflation expectations. So you could argue that was quite a healthy repricing of bond yields higher as inflation expectations went higher.

00:24:02

And then last week, it switched. It switched. And inflation expectations actually came down. And it was the real yields going higher which was driving bond yields higher. And that real yield going higher is a challenge for risk assets and that’s where you’re starting to see equities wobble a little bit.

And effectively, we think of the real yields as tightening financial conditions. Part of it was driven by earlier rate hike expectations, and there were other elements. But this part of the bond sell-off is not healthy for risk assets. It’s not inherently healthy for risk assets.

And I would say also, the bond market sell-off is starting to become a bit unhinged. The price action in Australian government bonds this Monday was out of control. Yields went roughly 20 basis points higher on no particular economic data and really, really dislocated markets.

So there’s an element of government bond markets selling off for the wrong reasons, which is, I think, starting to concern other asset classes. But you read in the papers that the copper price or the oil price is driving government bond yields. No. That was the case until about a week and a half ago. Now, something else is going on that, frankly, you all need to be aware of.

And then there’s a question about the 1.3 million migrant workers that have left the UK in the last year or so. Look, for long-term growth and inflation, that’s negative. The potential of this economy to grow is labour force growth plus productivity. So a shrinking labour force is not good in the long term.

00:26:03

But short term, some of these COVID impacts can create inflation so you could see a little bit of wage inflation in certain sectors in the short term. So I think… And that really speaks to the whole COVID crisis, the dispersion of impacts across sectors and households and the short term versus the long run impacts. Shall I ask you a question, John?

JP               Yes.

JB               How far would you go in terms of government bonds as a percentage of the portfolio?

JP               Yes. Well, that’s a good question. I think, well, back in the crisis, if I’m right in saying in the previous crisis in 2008, from memory, we had an exposure which, in duration years, contribution terms, I think we actually had duration up at about ten years. And I think six years of that was in interest rate futures. So we don’t always just measure risk in asset allocation because we can use interest rate futures. So I think, at that time, we had about 20% as well. But structurally, we would have to be awfully bearish for that to happen.

But I think you could easily have maybe 30-40% in sovereign bonds and you could easily have, at extreme, a similar amount geared in interest rate futures. And then, invariably, you’d still have a residual with some investment grade bonds, maybe, I don’t know, 20-30%, and probably not much high yield. You might have a little bit of high yield rolling off that might be very short dated, but we tend to look in years of duration contribution. And the answer is probably ten or 11 would be pretty extreme, and two or three, on the other end of it, is less extreme.

But we try and be flexible. We try not to be slaves to any particular asset class. If there’s value in sovereign bonds, we’ll tell you, if there’s value in investment grade, if there’s value in high yield, if there’s value in loans. But the derivative overlay gives us extra flexibility, and it’s much cheaper to trade for our clients as well. We could talk about ESG, maybe Jen. Shall I go to the slide itself?

00:28:06

JB               Yes, there’s a question about it.

JP               Do you want to read it out, and I’ll…?

JB               Yes, the question is, do you take into account ESG factors in your credit selection, and what are your views here?

JP               So, yes is the answer. I think, just to explain, Jenna and I have always been sympathetic to what I’d call the stakeholder model. So, sometimes capitalism and so on can be a little bit vulgar. Companies don’t always look after all their stakeholders. And Jenna and I have always really felt that a good company which is genuinely sustainable won’t just look after its shareholders. It would look after its bondholders, but also, its employees and its customers and its suppliers and its debtors and its creditors in a much more holistic sense.

And I think that’s always been pretty important to us. But in addition, we’ve always had quite a strong focus on resilient businesses. So a resilient business which is one which has a sensible balance sheet can cope with change, but is mindful of all those stakeholder pressures.

And I think it’s a combination of a genuinely sustainable business with resilient business strategy and models, which often embarks itself on good and sustainable returns on capital employed, invariably meaning that we lend to better quality growth businesses which will be sustainable in the very long term. And I think that’s a really important point.

So a lot of those problematic industries such as shipping, energy, steel, autos, and so on, we just don’t lend to for a number of reasons. But one of them is that they don’t actually achieve a very good return on capital for any of their stakeholders. You can see the charts where… And hence we actually screen pretty well on these charts from Sustainalytics, as you can see in front of you, where we have some…

00:30:00

We have an internal rating system, but I think we get third-party corroboration from external rating systems on ESG as well. And, hey, we completely understand you need to lend and dialogue and engage with businesses to ensure they’re discussing and doing the right things and evolving rather than just screening for good businesses.

But irrespective, as you can see from the slides, we do screen very well. We actually screen better than some of the ESG ETFs out there, would you believe? And on the negligible/low, we score very high and we have very, very low carbon footprint, which isn’t a great surprise to us because, obviously, a lot of the businesses we screen tend not to pollute, in the broadest sense of the word. But that gives you a little bit of a feel. Sorry for jumping around. A little bit of a feel how we screen against many.

I think the question also said, is there a bit of a bubble developing? Yes, I think there is, certainly in equity ESG-compliant companies. And I think, to be honest, it will be a massive, massive structural trend, probably one of the biggest structural trends that Jenna and I have seen for ever. And it will continue to dominate flows and discussions for years to come. Shall we do one more? Oh, sorry.

AM             Yes, I think we can do another question, John. What about a comment on the asymmetric risk on fixed income? Core fixed income is not only yielding less but, at the same time, protecting less when flight to quality occurs.

JB               Is it? So we’ve heard that argument for about a decade, haven’t we, John?

JP               Yes.

JB               We’ve heard that argument for about a decade that government, well, yields less, yes, core fixed income does yield less, that’s correct, but not protecting you on a flight to quality, disagree. Disagree. They protected you wonderfully well during the COVID crisis. Whether it was German Bunds, US Treasuries, UK Gilts, they did what they’re supposed to do. In a deflationary economic shock, when growth and inflation slow, bonds have continued to perform exactly as you would expect.

00:32:11

Where they won’t protect you is if it’s real yields rising, yes, if it’s bonds that cause the sell off. And that happened in 2013 in the taper tantrum. So, no. Yes, and we’ve heard the argument, as I said, for many, many years, but we still think bonds are actually pretty much the only asset class that will go up when the economy goes down.

AM             So, Jenna, in practice, there’s a certain range of government bond exposure that you’ll have in a portfolio. We say you can do 0% to 100%, but really, how far would you go in terms of government bonds as a percentage of the portfolio?

JB               I think the physical government bonds are about 30-40%. Back two years ago, in 2019, in a classic late-cycle environment, that’s the kind of range that we would… When we really see… If we start to get worried about credit in terms not just of valuations but also of potential defaults and we think the economy is late cycle, yes, we can run government bonds up to 30-40% in the Strategic Bond Fund, if not higher.

AM             Here’s a good question. I always like this one when it comes in. Do you see the funds achieving a positive return in 2021? Be careful.

JB               Yes, we do. We do. I think everybody… I think most non-bond people are pretty bearish on bonds and think the only possible return from a core bond fund, at least, would be negative.

00:34:01

But no, as I think I said at the start, this reflation trade began last March. Ten-year break-evens have gone from 50 basis points in the US to 225 basis points. A lot of pain has been taken under the surface in the bond market because this trade did not begin in January. This trade began in March 2020 at the low of the cycle., 5year/5year forwards in terms of where rate hikes may peak in the US, are pushing 2.25%. That’s totally where rates peaked in the last cycle at 2.5.

So, under the surface of the bond market, a lot has already been priced in. And this, to us, feels like the final leg in that reflation trade that’s actually becoming quite manic and quite hysterical. So we are actually quite optimistic. But I know that’s a contrarian view, so you may think we’re completely mad. [Overtalking].

JP               Yes. But actually, just to add to that, we’re down roughly 1%, but gilts are down 6.5%, Treasuries are down 2% or 3%, but a lot of the tough work has been done and I think we’ve just got to wait for our opportunity. Sometimes bond returns can be a little bit lumpy, but that is another way of saying we need patience and perspective to wait for the opportunity, which is actually what we’re really saying today.

And I might just add, markets are quite seasonal as well. So, generally, in the first quarter, as Jenna said, people tend to be a bit too optimistic about reflation. Treasury and sovereign yield curves, oh, sorry, sovereign yields tend to rise a little bit in Q1 and a bit into Q2, and then fade and can fall as an up in price into the autumn and beyond. So we’re aware of that and we’re just waiting. So we will try our very best to get a positive return. I think if we get this call right, we should be able to. And remember that we’ve got a yield book behind us as well.

AM             Thank you.

00:35:59

JP               But adding a bit of context, we did do roughly 10% last year as well. So to be fair, you’re starting from a slightly tougher place. But that’s why we’re changing the asset allocation and being active, which is what Jenna and I always do.

JB               Yes.

AM             All right. So we’ll do… Oh, go ahead, Jenna.

JB               Maybe just saying, bonds are close to the most oversold they’ve been since 2016. I think commodities are the most overbought since 2008. And the weekly S&P momentum is the highest on record. So, are you safer buying a core bond fund here, or are you safer buying risk assets? If you zoom out, I think the answer may be different to what we’ve just experienced over the last two months. So I’ll hand it back to you, Amber.

AM             Well, thank you very much. We do have a few questions left and we will address those with clients individually, just to keep this in a reasonable amount of time. So, thank you very much, everybody, for listening. Thank you very much, John and Jenna, for your presentation. We have run out of a bit of time and we will be in touch for any of those questions left behind. Any final comments, John and Jenna, before we sign off?

JB               No.

JP               Thank you for listening.

JB               Thank you.

AM             Thank you very much.

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