Table of Contents
The Global Total Return Strategy seeks to add +200 bps of annualized gross excess return over the Bloomberg Barclays Global Aggregate Index over a full market cycle.1,2 The Strategy invests in debt securities of developed and emerging foreign corporations and governments (including supranational organizations, semi-governmental entities, or government agencies); in investment-grade developed market mortgages and mortgage-related securities; and in developed and emerging short-term and long-term bank debt securities or bank deposits. We look mostly for investment-grade securities denominated in U.S. dollars or foreign currencies but may also invest a portion of assets in non-investment grade, high yield bonds. The Strategy may invest in derivatives to generate alpha and hedge risk exposures.
The Global Total Return Strategy’s philosophy is that diversified portfolios, built through the integration of credit research, quantitative research, and risk management, can achieve consistent excess returns for clients with a high information ratio. This same research-based, relative-value oriented process is implemented across all multi-sector fixed income strategies managed by PGIM Fixed Income.
The Strategy seeks highly diversified, sustainable sources of excess return across global fixed income sectors and currencies with an emphasis on managing downside risk. The Strategy’s approach focuses on relative-value based country and sector allocation, research-based sub-sector and security selection, and duration, yield curve, and currency management. The Strategy favors the credit-oriented sectors, reflecting the Firm’s significant research expertise.
We seek to capture several market inefficiencies when investing across the global fixed income markets. We seek to anticipate both positive and negative economic and credit-related events before others do, through our significant internal research staff. To do so, we organize our macro-economic, portfolio management and research teams by region/sector/industry, fostering an in-depth knowledge of trends and individual companies, including ones not always followed closely by Wall Street. We seek to capitalize on currency dislocations and aberrations in yield curves using proprietary modeling. Finally, we look to capture inefficiencies driven by supply/demand and other technical factors, such as dislocations in spreads across different countries, sectors, industries, and even different maturity bonds, or bonds and loans, of the same issuer.
PGIM Fixed Income employs a disciplined, four-step investment process to manage Global Total Return portfolios:
1. Top Down Risk Allocation:
Assess global appettite for risk to determine portfolio risk profile, leveraging firm's resources.
2. Asset Allocation - Global Rates, FX, & Spread Sector Allocation:
Determine country/term structure, currency, and sector positioning. Ideas from sector specialists are emphasized.
3. Security Selection & Relative Value:
Bottom-up research-based approach. Sector specialists and research analysts aligned by sector/industry.
4. Risk Management:
Employ a rigorous process to tightly monitor risk as all levels. Use proprietary tools to verify performance achieved is appropriate for risk taken.
1 There is no guarantee that these objectives will be met.
2 On average, over a full market cycle defined as three to five years.
No risk management technique can guarantee the mitigation of elimination of risk in any market environment.
Source: PGIM Fixed Income as of June 30, 2020.