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IMPORTANT INFORMATION

You are about to enter a website for professional/institutional investors and the information contained herein is not suitable for retail investors. Private/retail investors should not proceed any further.

By clicking “Accept” you expressly acknowledge and confirm that you are accessing this site for the purposes of acquiring information as a professional/institutional investor and accept the Terms of Use.

  • TERMS OF USE

    Your access to and use of the web sites (“Services”) of Wellington Management are conditioned on your acceptance of and compliance with these Terms of Use (“Terms”). By accessing or using the Services, you agree to be bound by these Terms. If you are accepting these Terms and using the Services on behalf of a company, organization, government, or other legal entity, you represent and warrant that you are authorized to do so. You may use the Services only in compliance with these Terms and all applicable local, state, national, and international laws, rules, and regulations.

    Ownership
    All materials on this web site are owned or licensed by Wellington Management and/or its third-party providers and are protected by US and international intellectual property laws.  Unless otherwise indicated, all service marks, trademarks, and logos appearing on this web site are the exclusive property of Wellington Management. The information, materials, and other content of this web site may not be copied, displayed, distributed, downloaded, licensed, modified, published, reposted, reproduced, reused, sold, transmitted, used to create a derivative work, or otherwise used for public or commercial purposes without the express written consent of Wellington Management.

    Products and services
    The information, materials, products, and services on this web site are current at the time of writing and are subject to change. Not all products and services are available in all geographic areas. Your eligibility for particular products or services is subject to determination by and the approval of Wellington Management. No solicitation is made by Wellington Management to any person to use any information, materials, products, or services in any jurisdiction where the provision of such information, materials, products, and services is prohibited by law.

    The information on this web site or in any communication containing a link to this web site is not intended to constitute investment advice or an offer to sell, or the solicitation of an offer to purchase shares or other securities.

    Investment products and services are available through Wellington Management. Investment products and services are not FDIC-insured, are not deposits or obligations of, or guaranteed by, any bank, and involve investment risks, including the possible loss of the principal amount invested. Investors should always obtain and read an up-to-date investment services description or prospectus before deciding whether to appoint an investment manager or invest in a fund.

    International use
    Wellington Management makes no warranties that materials on this web site are appropriate for use in countries other than the US. Because the web site may be accessed internationally, you agree to comply with all local laws, rules, and regulations including, without limitation, all laws, rules and regulations in effect in the country in which you reside and the country from which you access the web site. The information on this web site is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to law or regulation, or which would subject Wellington Management or its affiliates to any registration requirement within such jurisdiction or country.

    No warranty
    Wellington Management does not warrant the accuracy, adequacy, completeness, or timeliness of the information, materials, products, and services on this web site or the error-free use of this web site. All information, materials, products, and services are “as is” and “as available.” No warranty of any kind, express or implied, including but not limited to the warranties of non-infringement of third-party rights, title, merchantability, fitness for a particular purpose, and freedom from computer virus is given in conjunction with the information, materials, products, and services. Any views expressed herein are those of the author(s), are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients. Wellington Management does not warrant that the web site will meet your needs. You agree to assume the entire risk as to your use of the web site.

    Limitation of liability
    In no event shall Wellington Management be liable for any damages, losses, or liabilities including without limitation, direct or indirect, special incidental, consequential damages, losses, or liabilities, in connection with your use of this web site or your reliance on or use or inability to use the information, materials, products, and services on this web site, or in connection with any failure of performance, error, omission, interruption, defect, delay in operation or transmission, computer virus, or line or system failure, even if Wellington Management is advised of the possibility of such damages, losses, or expenses.

    YOU UNDERSTAND AND AGREE THAT YOUR USE OF THIS WEB SITE IS PREDICATED UPON YOUR WAIVER OF ANY RIGHT TO SUE WELLINGTON MANAGEMENT OR ITS AFFILIATES DIRECTLY OR TO PARTICIPATE IN A SUIT FOR ANY LOSSES OR DAMAGES RESULTING FROM YOUR USE OF THIS WEB SITE.

    Indemnification
    As a condition of your use of the Services, you agree to indemnify and hold Wellington Management, its affiliates, and its and their respective partners, directors, employees, and agents harmless from and against any and all claims, losses, liability, costs, and expenses (including but not limited to attorneys’ fees) arising from your use of the web site or from your violation of these Terms.

    Hyperlinks
    Your use of the hyperlinks on this web site to other Internet web sites is at your own risk. Wellington Management is not responsible for the content or accuracy of third-party web sites hyperlinked from this web site, nor does it guarantee the products or services offered on third-party web sites. You should review the privacy statements of a web site before you provide any personal or confidential information.

    Web site security and restrictions on use
    As a condition to your use of Services, you agree that you will not, and you will not take any action intended to:  (i) access data that is not intended for you; (ii) invade the privacy of, obtain the identity of, or obtain any personal information about any other user of this web site; (iii) probe, scan, or test the vulnerability of this web site or Wellington Management’s network or breach security or authentication measures without proper authorization; (iv) attempt to interfere with service to any user, host, or network or otherwise attempt to disrupt our business; or (v) send unsolicited mail, including promotions and/or advertising of products and services. Unauthorized use of the web site or Services, including but not limited to unauthorized entry into Wellington Management’s systems, misuse of passwords, or misuse of any information posted to a web site, is strictly prohibited. Portions of the web site are designated for password access only as indicated by a lock icon. In these instances, if you do not have an authorized password, no access is permitted.

    Confidentiality and password security
    Certain parts of this web site may be protected by passwords or require a login. You are responsible for maintaining the confidentiality of any user names, passwords, security questions, and answers. All information available through the privileged area of the site is confidential and proprietary to us. This includes all investment information and results, offering materials, financial statements, and other information provided through this part of the site.

    You will use your best efforts to keep all this information strictly confidential. You will not disclose any of this information to any person or use it for any purpose other than those strictly permitted by us, in writing.

    Severability
    If any provision of these Terms is deemed unlawful, void, or for any reason unenforceable, then that provision will be reformed only to the extent necessary to make it enforceable, and it will be deemed severable from these Terms and will not affect the validity and enforceability of the remaining provisions.

    Applicable law
    These Terms and any action related thereto are governed by Massachusetts law and applicable US federal law. Any dispute relating to the above shall be resolved solely in the state or federal courts located in Massachusetts.

    Privacy statement
    Wellington Management respects the privacy of its clients and the confidentiality of information pertaining to its clients.

    Information we collect
    We may collect non-public personal information about you on RFPs, questionnaires, and other forms we receive from you, as well as from personal contacts such as correspondence, e-mail, telephone calls, or meetings. We may also receive information about you from third parties, such as your accountants, lawyers, financial consultants, and/or other service providers.

    It also is possible to receive information from web browsers and apps regarding certain of your online activities using cookies, or other common tracking technologies.  Some web browsers and other applications may provide a Do Not Track (DNT) preference setting.  When a user turns on a tracking preference, the browser or application may send a message to web sites requesting that they do or do not track the user. At this time, we take no actions in response to any DNT settings or messages.

    Information sharing
    Wellington Management seeks to provide seamless service to all clients. To facilitate that process, information regarding client accounts is shared broadly between affiliates within the Wellington Management group of companies. For example, an affiliate may share information with other affiliates in order to facilitate portfolio management or provide client liaison services to a particular client. Client information may be used by Wellington Management in order to identify potential client needs for additional investment management services.

    Wellington Management generally does not share non-public client information with unaffiliated third parties, except as necessary to perform the investment management services it has been hired to provide. For example, Wellington Management may share non-public client information with brokers and custodian banks in order to buy and sell securities and record those purchases and sales accurately. As a general rule, Wellington Management does not engage in joint marketing arrangements with unaffiliated third parties that involve the sharing of non-public information regarding Wellington Management’s clients. Wellington Management does not provide client information to unaffiliated third parties for their own marketing purposes.

    Wellington Management does not disclose your information except as required or permitted by law. In the event that Wellington Management is involved in a merger, acquisition, reorganization or sale of assets, or bankruptcy, your information may be transferred or sold as part of that transaction.

    Security policies
    We use technical, administrative, and procedural measures in an attempt to safeguard your personal and other information from unauthorized access or use. No such measure is ever 100% effective though, so we do not guarantee that your personal and other information will be secure from theft, loss, or unauthorized access or use, and we make no representation as to the reasonableness, efficacy, or appropriateness of the measures we use to safeguard such information. Users are responsible for maintaining the secrecy of their own passwords. If you have reason to believe that your interaction with us is no longer secure (for example, if you feel that the security of any account you might have with us has been compromised), please immediately notify us by contacting your relationship team member.

    Transfer of data to other countries
    Any information you provide to Wellington Management through use of the Site may be stored and processed, transferred between, and accessed from the US and other countries which may not guarantee the same level of protection of personal information as the one in which you reside. However, Wellington Management will handle your personal information in accordance with this Privacy Statement regardless of where your personal information is stored/accessed.

    Changes to Terms of use

    We may revise these Terms from time to time; the most current version will always be at https://www.wellington.com/terms-use. By continuing to access or use the Services after those revisions become effective, you agree to be bound by the revised Terms.

    Effective as of  17 January 2014

I ACCEPT I DO NOT ACCEPT
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Website Terms of use:

You are about to enter a website for professional investors (as defined in the Markets and Financial Instruments Directive 2014/65/EU as amended or updated (“MiFID”)) including financial advisers and/or intermediaries and the information contained herein is not suitable for retail clients. Any person unable to accept these terms and conditions should not proceed any further. Before making any investment decision, you shall read carefully the offering documents of each Fund.

The use of Wellingtonfunds.com (this “Website”) is subject to the following terms and conditions (the “Terms”). After you have read and understood these Terms, you may click “Accept” to confirm that you agree to the Terms.

By clicking “Accept” you:

(i) expressly acknowledge that you have read and understood the Terms and agree to abide by them;

(ii) represent and warrant that the jurisdiction you have selected is the applicable jurisdiction for the intended investment activities, and that you are not resident in the United States of America and are not a U.S. Person;

(iii) confirm that you are accessing this Website in compliance with the laws and regulations of the jurisdiction you have selected, and all other applicable laws, rules and regulations;

(iv) represent and warrant, if applicable, that you are authorised to accept these Terms and use or access (or attempt to use or access) this Website on behalf of your employer, your client, or both, and that in doing so you are acting within the scope of your duties and, at all times, on behalf of your employer, your client or both; and

(v) hereby represent and warrant that you are not a private investor or retail client as categorised under MiFID) and that you shall not in any circumstances use or rely on any information displayed on this Website for your own personal investment use.

If you do not agree with these Terms you must refrain from using this Website.

In these Terms, references to “you” and “your” are references to any person using or accessing (or attempting to use or access) this Website or, as the context requires, the legal entity on whose behalf a user uses or accesses (or attempts to use or access) this Website. References to “Wellington Management”, “we” and “us” are references to Wellington Management International Limited.

By entering this Website, you acknowledge and agree to be bound by each of the Terms, together with any additional terms and conditions that apply to individual webpages, documents or other attachments contained within this Website (together, the “Conditions of Use”). If there are any Conditions of Use that you do not understand or agree with, you must leave this Website or the webpage in question (as applicable) immediately and delete immediately from the memory of your computer all documents from this Website.

  1. About this Website: The information on this Website is issued and communicated by Wellington Management International Limited (“Wellington Management,” “we” and “us”), which is authorised and regulated by the Financial Conduct Authority of the United Kingdom. This Website contains information about various umbrella funds (each an “Umbrella Fund” and together the “Umbrella Funds”) and their sub-funds (the “Funds”) which have been registered, or otherwise notified, for public distribution and marketing in the jurisdiction you have selected.

    Please note that the fact of such registration or notification does not mean that any regulator (including the Commission de Surveillance de Secteur Financier (CSSF) or any national regulator of your jurisdiction) has determined that the Funds are suitable for all or any investors. The Funds referred to on this Website may not be suitable investments for you and you should therefore seek professional investment advice before making a decision to invest in any of the Funds.

    Before making any investment decision read carefully the offering documents of each Fund.

  2. Access to this Website: In order to access this Website, you have been asked to select the jurisdiction which is applicable for the intended investment activities. Your selection will be used to determine the information that you will be able to access on this Website. You hereby represent and warrant to Wellington Management that the information that you have provided is true, accurate and complete and you undertake to notify us of any change to such information. Failure to provide us with accurate information will be treated as a material breach of these Terms. Certain Funds may not be available in all geographical locations and so information about certain Funds may not be available to all users of this Website. You must not attempt to gain access to areas of this Website other than those made available to users in the jurisdiction you selected. If the jurisdiction you should select changes, you must access this Website selecting your new jurisdiction. You should be aware that this may result in you not being able to access (i) information in relation to the same Funds as previously, or (ii) any information at all. Please note that the fact of selecting a jurisdiction does not mean that all or any of the Funds in relation to which information is made available, have been deemed suitable for you.

    When using this Website you must comply with all applicable local, national and international laws and regulations including those related to data privacy, international communications and exportation of technical or personal data. It may be unlawful to access or download the information contained on this Website in certain countries and the Umbrella Funds, Wellington Management and its affiliates disclaim all responsibility if you access or download any information from this Website in breach of any law or regulation of the United Kingdom, the jurisdiction in which you are residing or domiciled or the jurisdiction from which you access the Website.

    If you are acting as a financial adviser or intermediary, you agree to access this Website only for the purposes for which you are permitted to do so under applicable law. If you are acting as a financial adviser or intermediary and provide services to clients categorised as retail clients under MiFID, you agree that you will not share with or provide to your retail clients any information available on this Website that has not been approved for retail use and is not otherwise suitable for your retail clients.

    Wellington Management reserves the right to suspend or withdraw access to any page(s) included on this Website without notice at any time and accepts no liability if, for any reason, these pages are unavailable at any time or for any period.

  3. No Market Timing: You agree not to engage in any “market timing” practices with respect to your investment in any Fund and shall take all reasonable steps to ensure that no user authorised to access this Website on your behalf engages in any such market timing practices. For these purposes, “market timing” shall include engaging in any trading strategy with the intention of taking advantage of short term changes in market prices including (without limitation) by engaging in: (i) excessive trading, (ii) late trading or (iii) market abuse.

  4. U.S. Persons: Interests in the Funds are not being offered, and will not be sold, within the United States or to, or for the account or benefit of, any U.S. Person. The term U.S. Person shall have the meaning given to it in Regulation S under the United States Securities Act of 1933, as amended, and includes, among other things, U.S. residents and U.S. corporations and partnerships.

  5. Selling Restrictions: The distribution of the information and documentation on this Website may be restricted by law in certain countries. This Website, and the information and documentation on it, are not addressed to any person resident in the territory of any jurisdiction where such distribution would be contrary to local law or regulation. Not all the Funds in relation to which information is available on this Website are available in all geographical locations and so not all areas of this Website will be accessible to all users. The Funds are not available, and offering materials relating to them will not be distributed, to any person resident in any jurisdiction where such distribution would be contrary to local law or regulation.

  6. No Investment Advice: The information on this Website is provided for information only and on the basis that you will make your own investment decisions.

    Nothing contained on this Website constitutes, and nothing on this Website should be construed as, investment advice or a recommendation to buy, sell, hold or otherwise transact in any investment including interests in the Funds. It is strongly recommended that you seek professional investment advice before making any investment decision.

    Unless agreed separately in writing with a client, Wellington Management and its affiliates neither provide investment advice to nor receive and transmit orders from investors in the Funds nor do they carry on any other activities with or for such investors that constitute “investment services” or “ancillary services” for the purposes of MiFID.

    You should consider whether an investment fits your investment objectives, particular needs and financial situation before making any investment decision. You should also inform yourself as to (a) the possible tax consequences, (b) the legal requirements and (c) any foreign exchange restrictions or exchange control requirements which you might encounter under the laws of the countries of your citizenship, residence or domicile and which might be relevant to the subscription, holding, transfer or disposal of interests in the Funds.

  7. Past Performance; Forecast; Simulation: To the extent that this Website contains any information regarding the past performance and/or forecast of the Funds, such information is not a reliable indicator of future performance of these Funds and should not be relied upon as a basis for an investment decision.

    To the extent that this Website contains any information regarding simulated past performance, such information is not a reliable indicator of future performance and should not be relied on as the basis for an investment decision. Investment results for each Fund may vary.

    The value of investments and the income from them can go down as well as up and investors may not get back the amount originally invested and may lose all of their investment. The value of investments in the Funds may be affected by the price of underlying investments. Exchange rate changes may cause the value of overseas investments to rise or fall.

  8. Price Information: All prices or values may not reflect actual prices or values that would be available in the market at the time provided or at the time you may decide to purchase or sell an interest in a particular Fund.

  9. Risk Warnings: There are significant risks associated with an investment in any of the Funds. Investment in the Funds is intended only for those investors who can accept the risks associated with such an investment (including the risk of a complete loss of investment).You should ensure that you have fully understood such risks before taking any decision to invest.

    Investments in the Funds are neither insured nor guaranteed by any investor compensation scheme and are not deposits or obligations of, or guaranteed by, any entity within the Wellington Management group.

    These Terms do not represent a complete statement of the risk factors associated with an investment in the Funds. The offering documents for each Fund contain risk warnings which are specific to the relevant Fund. You should consider these risk warnings carefully and take appropriate investment advice before taking any decision to invest.

  10. Offering Documents: The terms of any investment in a Fund are governed by the documents establishing such terms. An application for interests in any of the Funds should only be made having fully and carefully read the offering documents, which are the relevant offering memorandum, the latest financial reports and any other offering documents for the relevant Fund which are available on this Website and upon request from the fund representative in your jurisdiction and specified in the offering memorandum for the relevant Fund.

    It is your responsibility to use the offering documents and by making an application to invest in a Fund you will represent that you have read the offering memorandum for the relevant Fund, the appropriate key investor information document for the Fund and any other applicable offering document and will agree to be bound by its contents.

  11. Information on this Website: This Website, and the information on it, are provided for information purposes only and do not constitute an invitation, offer or solicitation to engage in any investment activity including to buy, hold or sell any investment including any interests in the Funds.

    The information on this Website is provided in good faith and reasonable care has been taken to ensure that such information is accurate, current and fit for its intended purpose. To the extent that any information on this Website relates to a third party, this information has been provided by that third party and is the sole responsibility of such third party and, as such, Wellington Management and its affiliates accept no liability for such information.[ No representation or warranty of any kind regarding the accuracy, adequacy, validity, completeness or timeliness of the information on this Website or the error-free use of this Website is given and, to the extent permitted by applicable laws, no liability is accepted for the accuracy or completeness of such information. No warranty of any kind, express or implied, including but not limited to the warranties of non-infringement of third-party rights, title, merchantability, fitness for a particular purpose, and freedom from computer virus is given in conjunction with the information, materials, products, and services on the Website. Any views expressed herein are those of the author(s), are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients. Wellington Management does not warrant that the Website will meet your needs. You agree to assume the entire risk as to your use of the Website. Any person who acts upon, or changes his investment position in reliance on information contained on this Website, does so entirely at his own risk. In the event of any inconsistency between the information on this Website and the terms of the relevant offering documents, the terms of the offering document shall prevail.

    All content on the Website is subject to modification from time to time without notice save for any mandatory disclosure requirements. Please contact Wellington Management (using the details in the “Contact Us” section below) for further information regarding the validity of any information contained on this Website. This Website and most of the documentation contained within it is provided in the English language and you represent and warrant that you understand the English language.

    The Website is limited to funds and sub-funds (and related information and documents) which have been authorised for sale.

  12. Conflicts of Interest: Wellington Management, its affiliates and their directors, officers, employees or clients may have or have had interests or long or short positions in any investment product or other financial instruments underlying any investment product referred to on this Website and may at any time make purchases and/or sales in them as principal or agent. In addition, Wellington Management and/or its affiliates may act or have acted as market maker in any investment product, or financial instruments underlying such investment product or entered into an arrangement to hedge the market risk associated with the investment products. The Wellington Management group has conflicts of interest policies in place which specify the procedures that they follow and the measures that they have adopted in order to avoid such conflicts or to manage such conflicts in a way that ensures fair treatment for clients.

  13. Monetary Benefits: You agree that we may, to the extent permitted by applicable laws and regulations, share charges or commission with affiliates of Wellington Management or other third parties, or receive remuneration from them, in respect of transactions you carry out in relation to the Funds described on this Website. Where relevant, we may disclose such arrangements to you. Details of any such arrangements are available on request.

  14. Liability: No warranty is given that the contents of this Website are compatible with all computer systems or browsers or that this Website shall be available on an uninterrupted basis.

    The internet is not a completely reliable transmission medium and none of the Umbrella Funds, Wellington Management or any of its affiliates accept any liability for any data transmission errors such as data loss or damage or alteration of any kind or for the security or confidentiality of information transmitted across the internet to or from the Umbrella Funds, Wellington Management or any of its affiliates. Any such transmission of information is entirely at your own risk and any material downloaded from this Website is downloaded at your own risk.

    The information on this Website is provided “as is” and “as available”. To the extent permitted by law, no guarantee or representation, express or implied, is made as to the accuracy, validity, timeliness, completeness or continued availability of any information made available on the Website The Umbrella Funds, Wellington Management, its affiliates and each of their directors, officers, employees and/or agents expressly exclude all conditions, warranties, representations, and other terms which might otherwise be implied by statute, common law or the law of equity to the fullest extent permitted by applicable law or regulation.

    In no event will the Umbrella Funds, Wellington Management, or any of its affiliates be liable to any person for any direct, indirect, special or consequential damages, losses or liabilities arising out of any use of, or inability to use, this Website or the information contained on it including, without limitation, lost profits, business interruption, any failure of performance, error, omission, interruption, defect, delay in operation or transmission, computer virus, line or system failure, loss of programs or data on your equipment or otherwise, even if the Umbrella Funds, Wellington Management or its affiliates is expressly advised of the possibility or likelihood of such damages, losses or liabilities, unless such damages, losses or liabilities are due to the Umbrella Funds’, Wellington Management’s or its affiliates’ negligence, willful default, fraud or material breach of the Umbrella Funds’, Wellington Management’s or its affiliates’ obligations under applicable law or regulation.

    This does not affect the liability of the Umbrella Funds, Wellington Management, or its affiliates for any loss or damage which cannot be excluded or limited under applicable law.

  15. Indemnification: As a condition of your use of the Website, you agree to indemnify and hold the Umbrella Funds, Wellington Management, and its affiliates, and their respective partners, directors, employees, and agents harmless from and against any and all claims, losses, liability, costs, and expenses (including but not limited to legal fees) arising from your use of the Website or from your violation of these Terms unless such claims, losses, liability, costs or expenses are due to the Umbrella Funds’, Wellington Management’s or its affiliates’ negligence, willful default, fraud or material breach of the Umbrella Funds’, Wellington Management’s or its affiliates’ obligations under applicable law or regulation.

  16. Intellectual Property: The entire content of this Website is subject to copyright with all rights reserved. All materials on this Website are owned or licensed by the Umbrella Funds, Wellington Management, its affiliates and/or its third-party providers and are protected by UK and international intellectual property laws. Unless otherwise indicated, all service marks, trademarks, and logos appearing on this Website are the exclusive property of the Wellington Management group. You may not copy, display, distribute, download, license, modify, publish, repost, reproduce, sell, transmit, and use to create a derivative work, or otherwise use for public or commercial purposes the content of this Website without the prior written permission of Wellington Management.

  17. Privacy: Please see our privacy policy which is contained on this Website for information about how the Wellington Management group protects your personal data, including personal data collected through this Website. You will be asked to agree to the terms of our privacy policy when selecting your relevant jurisdiction.

  18. Cookies: When you visit this Website, a Wellington Management group company server will record your IP address together with the date, time, page visited and duration of your visit. Please note that the Wellington Management group uses cookies on this section of the Website. Cookies are small pieces of software that are issued to your computer or device and that store and sometimes track information about your use of the site. Cookies on this Website may collect a unique identifier, user preferences and profile information and membership information from which it is possible to identify individual users. The Wellington Management group also uses cookies to collect general usage and volume statistical information that does not include personally identifiable information. Some cookies may remain on the user’s computer after they leave this Website (these are known as persistent cookies). For more information about cookies including how to set your internet browser to reject cookies, please go to www.allaboutcookies.org or http://youronlinechoices.eu.

    By using this Website, you agree that the Wellington Management group can place cookies on your device which collect the data and for the purposes described above and as further detailed in the Cookie Policy. If you delete cookies relating to this Website, we will not remember things about you, you will be treated as a first-time visitor the next time you visit this Website and we will not be able to tailor your experience of this Website.

    The Wellington Management group has engaged one or more third party service providers to track and analyze usage and volume statistical information from visitors to this Website. The service provider(s) set cookies on behalf of the Wellington Management group. The Wellington Management group may re-associate the information provided by the technologies directly above with other personal information we hold about you. By using this Website, you agree that third parties can place cookies on your device as described above.

  19. Your use of this Website: You must not use this Website (or permit or procure others to use it) as follows:

    • for any unlawful, improper or illegal purpose or activity;
    • to communicate or receive information that is obscene, indecent, pornographic, sadistic, cruel, or racist in content, of a sexually explicit or graphic nature, which promotes or incites discrimination, hatred or racism or which might be legally actionable for any reason;
    • in a manner intended to threaten, harass, or intimidate;
    • to violate Wellington Management’s or any third party’s copyright, trademark, proprietary or other intellectual property rights;
    • to damage Wellington Management’s name or reputation or that of Wellington Management’s affiliated companies or any third parties;
    • to impersonate any of Wellington Management’s employees or other person or use a false name while using this Website or implying an association with Wellington Management;
    • to penetrate Wellington Management’s security measures or other entities’ systems (“hacking”);
    • to transmit unsolicited voluminous emails (for example, spamming) or to intercept, interfere with or redirect email intended for others using this Website;
    • to generate excessive amounts of internet traffic, to interfere with Wellington Management’s network or other’s use of this Website or to engage in activities designed to, or having the effect of, degrading or denying service to other users of this Website or others;
    • to introduce viruses, worms, harmful code and/or Trojan horses onto the internet or into this Website or any other entity’s systems and it is your responsibility to ensure that whatever you download or select for your use from this Website is free from such items;
    • to post or transmit information that is defamatory, fraudulent or deceptive including, but not limited to, scams such as “make-money-fast” schemes or “pyramid/chain” letters; and/or
    • to transmit confidential or proprietary information, except solely at your own risk.
  20. Linked Websites: Links to websites operated by third parties are provided for information only and do not constitute any form of advice, endorsement or recommendation of such websites or the material on them. Wellington Management accepts no responsibility for information contained on any other sites which can be accessed by hypertext link from this Website or for these sites not being available at all times. Any use that you make of such websites and information is at your own risk. Please note that when you click on any external site hypertext link you will leave this Website. You should review the privacy statements of such websites before you provide any personal or confidential information.

  21. Website Security and Restrictions on Use: As a condition to your use of this Website, you agree that you will not, and you will not take any action intended to: (i) access data that is not intended for you; (ii) invade the privacy of, obtain the identity of, or obtain any personal information about any other user of this Website; (iii) probe, scan, or test the vulnerability of this Website or Wellington Management’s network or breach security or authentication measures without proper authorisation; (iv) attempt to interfere with service to any user, host, or network or otherwise attempt to disrupt our business; or (v) send unsolicited mail, including promotions and/or advertising of products and services. Unauthorised use of the Website, including but not limited to unauthorised entry into Wellington Management’s systems or misuse of any information posted to a web site, is strictly prohibited.

  22. Website Security and Restrictions on Use: As a condition to your use of this Website, you agree that you will not, and you will not take any action intended to: (i) access data that is not intended for you; (ii) invade the privacy of, obtain the identity of, or obtain any personal information about any other user of this Website; (iii) probe, scan, or test the vulnerability of this Website or Wellington Management’s network or breach security or authentication measures without proper authorisation; (iv) attempt to interfere with service to any user, host, or network or otherwise attempt to disrupt our business; or (v) send unsolicited mail, including promotions and/or advertising of products and services. Unauthorised use of the Website, including but not limited to unauthorised entry into Wellington Management’s systems or misuse of any information posted to a web site, is strictly prohibited.

  23. Third Parties: The Umbrella Funds, Wellington Management, and its affiliates shall have the benefit of the rights conferred on them by these Terms but otherwise no person who is not a party to these Terms may enforce its terms under the Contracts (Rights of Third Parties) Act 1999.

  24. Applicable Law: These Terms and any non-contractual obligations arising from or connected with them shall be governed by, and these Terms shall be construed in accordance with, the laws of England and Wales.

  25. Jurisdiction: You agree that the English courts shall have exclusive jurisdiction in relation to any legal action or proceedings arising out of or in connection with these Terms (whether arising out of or in connection with contractual or non-contractual obligations) (“Proceedings”) and waive any objection to Proceedings in such courts on the grounds of venue or on the grounds that Proceedings have been brought in an inappropriate forum. You further agree that this paragraph operates for the benefit of the Umbrella Funds, or Wellington Management and accordingly the Umbrella Funds, or Wellington Management shall be entitled to take Proceedings in any other court or courts having jurisdiction.

  26. Specific information for Spanish investors: Wellington Management International Limited is registered in the Spanish Securities Market Commission – Comision Nacional del Mercado de Valores (“CNMV”) with number 874, to provide investment services on a cross border basis. The Funds are registered in the CNMV for sale to professional investors and registration numbers may be found on the Website. The distributors in Spain of Funds registered in the corresponding CNMV Registry must provide to each unit-holder or shareholder, prior to subscribing units or shares in the Funds, a copy of the simplified prospectus or the document substituting it ( when applicable) and a copy of the latest published annual report and accounts. Delivery of these documents is mandatory and cannot be waived by the unit-holder or the shareholder. In addition, an updated copy of other official documentation of the Funds must be provided upon request. In any event at least one of the distributors will make available by electronic means all the documents, as well as the net asset values corresponding to the share or units marketed in Spain.

  27. About Wellington Management International Limited and the Umbrella Funds. Wellington Management International Limited is authorised and regulated by the Financial Conduct Authority of the United Kingdom and is entered on the register maintained by the Financial Conduct Authority and the Prudential Regulation Authority(Reference number: 208573). Its registered office is at Cardinal Place, 80 Victoria Street, London SW1E 5JL, United Kingdom and its VAT number is GB420309205. Wellington Management International Limited is an appointed distributor to the Funds.

    Wellington Management Funds (Luxembourg) II is an open-ended unincorporated mutual investment fund (fonds commun de placement) and is governed by the Luxembourg Law of 13th February 2007 on specialised investment funds, as amended from time to time, and qualifies as an AIF.

    Wellington Management Funds (Luxembourg) II SICAV is an open-ended investment company with variable capital (societe d’investestissement a capital variable) and is governed by Luxembourg Law of 13th February 2007 on specialised investment funds, as amended from time to time, and qualifies as an AIF.

    Wellington Luxembourg S.à r.l. is the appointed management company of Wellington Management Funds (Luxembourg) and alternative investment fund manager of Wellington Management Funds (Luxembourg) II and Wellington Management Funds (Luxembourg) II SICAV. Wellington Luxembourg S.à r.l. is a société à responsabilité limitée registered in Luxembourg and authorised by the Commission de Surveillance du Secteur Financier (the CSSF) as a management company authorised under chapter 15 of the Luxembourg law of 17 December 2010 on undertakings for collective investment, as amended. Wellington Luxembourg S.à r.l.’s registered address is at 33, Avenue de la Liberté, L-1931 Luxembourg.

  28. Contact Us: If you have any enquiries in relation to this Website or the information on it, please contact Wellington at infofunds@wellington.com.

Effective as of 21 August 2019

You are about to enter a website for qualified and professional investors including financial advisors / intermediaries and the information contained herein is not suitable for retail investors. Any person unable to accept these terms and conditions should not proceed any further.

 The use of Wellingtonfunds.com (this “Website”) is subject to the following terms and conditions (the “Terms”). After you have read and understood these Terms, you may click “Accept” to confirm that you agree to the Terms.

 By clicking “Accept” you:

(i) expressly acknowledge that you have read and understood the Terms and agree to abide by them;

(ii) represent and warrant that the jurisdiction you have selected is the applicable jurisdiction for the intended investment activities, and that you are not resident in the United States of America and are not a U.S. Person;

(iii) confirm that you are accessing this Website in compliance with the laws and regulations of the jurisdiction you have selected, and all other applicable laws, rules and regulations;

(iv) represent and warrant, if applicable, that you are authorised to accept these Terms and use or access (or attempt to use or access) this Website on behalf of your employer, your client, or both, and that in doing so you are acting within the scope of your duties and, at all times, on behalf of your employer, your client or both; and

(v) hereby represent and warrant that you are not a private investor or retail client (as defined in the Markets and Financial Instruments Directive 2014/65/EC as amended or updated (“MiFID”)) and that you shall not in any circumstances use or rely on any information displayed on this Website for your own personal investment use. 

If you do not agree with these Terms you must refrain from using this Website.

In these Terms, references to “you” and “your” are references to any person using or accessing (or attempting to use or access) this Website or, as the context requires, the legal entity on whose behalf a user uses or accesses (or attempts to use or access) this Website. References to “Wellington Management”, “we” and “us” are references to Wellington Management Switzerland GmbH. 

By entering this Website, you acknowledge and agree to be bound by each of the following terms and conditions, together with any additional terms and conditions that apply to individual webpages, documents or other attachments contained within this Website (together, the “Conditions of Use”). If there are any Conditions of Use that you do not understand or agree with, you must leave this Website or the webpage in question (as applicable) immediately and delete immediately from the memory of your computer all documents from this Website.

  1. About this Website: The information on this Website is issued and communicated by Wellington Management Switzerland GmbH (“Wellington Management,” we” and “us”), which is registered at the commercial register of the canton of Zurich with number CH-020.4.050.857-7 and which holds a distribution license from the Swiss Financial Market Supervisory Authority (“FINMA”), as a fund distributor. This Website contains information about various umbrella funds (each an “Umbrella Fund” and together the “Umbrella Funds”) and their sub-funds (the “Funds”) which have been registered, or otherwise notified, for public distribution and marketing in the jurisdiction you have selected. 

    Please note that the fact of such registration or notification does not mean that any regulator (including the Swiss Financial Market Supervisory Authority, the Commission de Surveillance de Secteur Financier (CSSF) or any national regulator of your jurisdiction) has determined that the Funds are suitable for all or any investors. The Funds referred to on this Website may not be suitable investments for you and you should therefore seek professional investment advice before making a decision to invest in any of the Funds.

    Before making any investment decision read carefully the offering documents of each Fund.

  2. Access to this Website: In order to access this Website, you have been asked to select the jurisdiction which is applicable for the intended investment activities. Your selection will be used to determine the information that you will be able to access on this Website. You hereby represent and warrant to Wellington Management that the information that you have provided is true, accurate and complete and you undertake to notify us of any change to such information. Failure to provide us with accurate information will be treated as a material breach of these Terms. Certain Funds may not be available in all geographical locations and so information about certain Funds may not be available to all users of this Website. You must not attempt to gain access to areas of this Website other than those made available to users in the jurisdiction you selected. If the jurisdiction you should select changes, you must access this Website selecting your new jurisdiction. You should be aware that this may result in you not being able to access (i) information in relation to the same Funds as previously, or (ii) any information at all. Please note that the fact of selecting a jurisdiction does not mean that all or any of the Funds in relation to which information is made available, have been deemed suitable for you. 

    When using this Website you must comply with all applicable local, national and international laws and regulations including those related to data privacy, international communications and exportation of technical or personal data. It may be unlawful to access or download the information contained on this Website in certain countries and the Umbrella Funds, Wellington Management and its affiliates disclaim all responsibility if you access or download any information from this Website in breach of any law or regulation of the United Kingdom, the jurisdiction in which you are residing or domiciled or the jurisdiction from which you access the Website. 

    If you are acting as a financial adviser or intermediary, you agree to access this Website only for the purposes for which you are permitted to do so under applicable law. If you are acting as a financial adviser or intermediary and provide services to clients categorised as retail clients under the MiFID, you agree that you will not share with or provide to your retail clients any information available on this Website that has not been approved for retail use and is not otherwise suitable for your retail clients. 

    Wellington Management reserves the right to suspend or withdraw access to any page(s) included on this Website without notice at any time and accepts no liability if, for any reason, these pages are unavailable at any time or for any period.

  3. No Market Timing: You agree not to engage in any “market timing” practices with respect to your investment in any Fund and shall take all reasonable steps to ensure that no user authorised to access this Website on your behalf engages in any such market timing practices. For these purposes, “market timing” shall include engaging in any trading strategy with the intention of taking advantage of short term changes in market prices including (without limitation) by engaging in: (i) excessive trading, (ii) late trading or (iii) market abuse.

  4. U.S. Persons: Interests in the Funds are not being offered, and will not be sold, within the United States or to, or for the account or benefit of, any U.S. Person. The term U.S. Person shall have the meaning given to it in Regulation S under the United States Securities Act of 1933, as amended, and includes, among other things, U.S. residents and U.S. corporations and partnerships.

  5. Selling Restrictions: The distribution of the information and documentation on this Website may be restricted by law in certain countries. This Website, and the information and documentation on it, are not addressed to any person resident in the territory of any jurisdiction where such distribution would be contrary to local law or regulation. Not all the Funds in relation to which information is available on this Website are available in all geographical locations and so not all areas of this Website will be accessible to all users. The Funds are not available, and offering materials relating to them will not be distributed, to any person resident in any jurisdiction where such distribution would be contrary to local law or regulation. 

    Certain information and documentation available on the Website relate to Funds, which have not been registered with the FINMA for distribution in or from Switzerland to non-qualified investors in accordance with Articles 119 etseq of the Federal Act on Collective Investment Schemes of 23 June 2006, as amended (“CISA”). Such information and documentation are exclusively directed at qualified investors within the meaning of Article 10 CISA located in Switzerland (“Qualified Investors”). By entering into this website you certify that you are a Qualified Investor and that you have read, understood and accepted the legal terms and conditions summarized hereinafter. Qualified Investors pursuant to Article 10 para 3, 3bis and 3ter CISA are in particular: 1) regulated financial intermediaries, such as banks, securities dealers, fund management companies, asset managers of collective investment schemes as well as central banks, 2) regulated insurance companies, 3) public entities and retirement benefits institutions with professional treasury facilities, 4) companies with professional treasury facilities, and 5) high-net worth individuals, which meet the requirements of Articles 6 and 6a of the Ordinance on Collective Investment Schemes of 22 November 2006, as amended (“CISO”). If you are a high-net worth individual resident in Switzerland, you hereby declare that you meet the requirements provided for by Article 6 CISO and that you have submitted an appropriate written opting-in declaration according to Article 6a CISO to Wellington Management. The Swiss representative and Swiss paying agent of the Funds is BNP Paribas Securities Services, Selnaustrasse 16, 8002 Zurich, Switzerland. The offering memorandum and the latest annual report of the Funds can be obtained free of charge from the Swiss representative of the Funds. In respect of the interests of the Funds distributed in and from Switzerland, the place of performance and jurisdiction is the registered office of the Swiss representative of the Funds.

  6. No Investment Advice: The information on this Website is provided for information only and on the basis that you will make your own investment decisions. 

    Nothing contained on this Website constitutes, and nothing on this Website should be construed as, investment advice or a recommendation to buy, sell, hold or otherwise transact in any investment including interests in the Funds. It is strongly recommended that you seek professional investment advice before making any investment decision.

    The information on this Website does not take account of any investor’s investment objectives, particular needs or financial situation. Investment in the Funds may not be suitable for you. In addition, nothing on this Website shall, or is intended to, constitute financial, legal, accounting or tax advice. 

    Unless agreed separately in writing with a client, Wellington Management and its affiliates neither provide investment advice to, nor receive and transmit orders from, investors in the Funds nor do they carry on any other activities with or for such investors that constitute “investment services” or “ancillary services” for the purposes of MiFID. 

    You should consider whether an investment fits your investment objectives, particular needs and financial situation before making any investment decision. You should also inform yourself as to (a) the possible tax consequences, (b) the legal requirements and (c) any foreign exchange restrictions or exchange control requirements which you might encounter under the laws of the countries of your citizenship, residence or domicile and which might be relevant to the subscription, holding, transfer or disposal of interests in the Funds. 

    Any opinion, article, comment, financial analysis, market forecast, market commentary or other such information which is published on the Website is not binding on Wellington Management or its affiliates nor are they deemed responsible for the opinions or information offered.

  7. Past Performance; Forecast; Simulation: To the extent that this Website contains any information regarding the past performance and/or forecast of the Funds, such information is not a reliable indicator of future performance of these Funds and should not be relied upon as a basis for an investment decision. To the extent that this Website contains any information regarding simulated past performance, such information is not a reliable indicator of future performance and should not be relied on as the basis for an investment decision. Investment results  for each Fund may vary.

    The value of investments and the income from them can go down as well as up and investors may not get back the amount originally invested and may lose all of their investment. The value of investments in the Funds may be affected by the price of underlying investments. Exchange rate changes may cause the value of overseas investments to rise or fall. 

  8. Price Information: All prices or values may not reflect actual prices or values that would be available in the market at the time provided or at the time you may decide to purchase or sell an interest in a particular Fund.

  9. Risk Warnings: There are significant risks associated with an investment in any of the Funds. Investment in the Funds is intended only for those investors who can accept the risks associated with such an investment (including the risk of a complete loss of investment).You should ensure that you have fully understood such risks before taking any decision to invest.

    Investments in the Funds are neither insured nor guaranteed by any investor compensation scheme and are not deposits or obligations of, or guaranteed by, any entity within the Wellington Management group.

  10.  Offering Documents: The terms of any investment in a Fund are governed by the documents establishing such terms. An application for interests in any of the Funds should only be made having fully and carefully read the offering documents, which are the relevant offering memorandum, the latest financial reports and any other offering documents for the relevant Fund which are available on this Website and upon request from the fund representative in your jurisdiction and specified in the prospectus for the relevant Fund.

    It is your responsibility to use the offering documents and by making an application to invest in a Fund you will represent that you have read the offering memorandum for the relevant Fund and any other applicable offering document and will agree to be bound by its contents.

  11. Information on this Website: This Website, and the information on it, are provided for information purposes only and do not constitute an invitation, offer or solicitation to engage in any investment activity including to buy, hold or sell any investment including any interests in the Funds.

    The information on this Website is provided in good faith and reasonable care has been taken to ensure that such information is accurate, current and fit for its intended purpose. To the extent that any information on this Website relates to a third party, this information has been provided by that third party and is the sole responsibility of such third party and, as such, Wellington Management and its affiliates accept no liability for such information. No representation or warranty of any kind regarding the accuracy, adequacy, validity, completeness or timeliness of the information on this Website or the error-free use of this Website is given and, to the extent permitted by applicable laws, no liability is accepted for the accuracy or completeness of such information. No warranty of any kind, express or implied, including but not limited to the warranties of non-infringement of third-party rights, title, merchantability, fitness for a particular purpose, and freedom from computer virus is given in conjunction with the information, materials, products, and services on the Website. Any views expressed herein are those of the author(s), are based on available information, and are subject to change without notice. Individual portfolio management teams may hold different views and may make different investment decisions for different clients. Wellington Management does not warrant that the Website will meet your needs. You agree to assume the entire risk as to your use of the Website. Any person who acts upon, or changes his investment position in reliance on information contained on this Website, does so entirely at his own risk. In the event of any inconsistency between the information on this Website and the terms of the relevant offering documents, the terms of the offering document shall prevail.

    All content on the Website is subject to modification from time to time without notice save for any mandatory disclosure requirements. Please contact Wellington Management (using the details in the “Contact Us” section below) for further information regarding the validity of any information contained on this Website. 

    This Website and most of the documentation contained within it is provided in the English language and you represent and warrant that you understand the English language.

    The Website is limited to funds and sub-funds (and related information and documents) which have been authorised for sale.

  12. Conflicts of Interest: Wellington Management, its affiliates and their directors, officers, employees or clients may have or have had interests or long or short positions in any investment product or other financial instruments underlying any investment product referred to on this Website and may at any time make purchases and/or sales in them as principal or agent. In addition, Wellington Management and/or its affiliates may act or have acted as market maker in any investment product, or financial instruments underlying such investment product or entered into an arrangement to hedge the market risk associated with the investment products. The Wellington Management group has conflicts of interest policies in place which specify the procedures that they follow and the measures that they have adopted in order to avoid such conflicts or to manage such conflicts in a way that ensures fair treatment for clients. 

  13. Monetary Benefits: You agree that we may, to the extent permitted by applicable laws and regulations, share charges or commission with affiliates of Wellington Management or other third parties, or receive remuneration from them, in respect of transactions you carry out in relation to the Funds described on this Website. Where relevant, we may disclose such arrangements to you. Details of any such arrangements are available on request.

  14. Liability: No warranty is given that the contents of this Website are compatible with all computer systems or browsers or that this Website shall be available on an uninterrupted basis.

    The internet is not a completely reliable transmission medium and none of the Umbrella Funds, Wellington Management or any of its affiliates accept any liability for any data transmission errors such as data loss or damage or alteration of any kind or for the security or confidentiality of information transmitted across the internet to or from the Umbrella Funds, Wellington Management or any of its affiliates. Any such transmission of information is entirely at your own risk and any material downloaded from this Website is downloaded at your own risk. The information on this Website is provided “as is” and “as available”. To the extent permitted by law, no guarantee or representation, express or implied, is made as to the accuracy, validity, timeliness, completeness or continued availability of any information made available on the Website. The Umbrella Funds, Wellington Management, its affiliates and each of their directors, officers, employees and/or agents expressly exclude all conditions, warranties, representations, and other terms which might otherwise be implied by statute, common law or the law of equity to the fullest extent permitted by applicable law or regulation.

    In no event will the Umbrella Funds, Wellington Management, or any of its affiliates be liable to any person for any direct, indirect, special or consequential damages, losses or liabilities arising out of any use of, or inability to use, this Website or the information contained on it including, without limitation, lost profits, business interruption, any failure of performance, error, omission, interruption, defect, delay in operation or transmission, computer virus, line or system failure, loss of programs or data on your equipment or otherwise, even if the Umbrella Funds, Wellington Management or its affiliates is expressly advised of the possibility or likelihood of such damages, losses or liabilities, unless such damages, losses or liabilities are due to the Umbrella Funds’, Wellington Management’s or its affiliates’ negligence, wilful default, fraud or material breach of the Umbrella Funds’, Wellington Management’s or its affiliates’ obligations under applicable law or regulation.

    This does not affect the liability of the Umbrella Funds, Wellington Management or its affiliates for any loss or damage which cannot be excluded or limited under applicable law.

  15. Indemnification: As a condition of your use of the Website, you agree to indemnify and hold the Umbrella Funds, Wellington Management, and its affiliates, and their respective partners, directors, employees, and agents harmless from and against any and all claims, losses, liability, costs, and expenses (including but not limited to legal fees) arising from your use of the Website or from your violation of these Terms, unless such claims, losses, liability, costs or expenses are due to the Umbrella Funds’, Wellington Management’s or its affiliates’ negligence, willful default, fraud or material breach of the Umbrella Funds’, Wellington Management’s or its affiliates’ obligations under applicable law or regulation.

  16. Intellectual Property: The entire content of this Website is subject to copyright with all rights reserved. All materials on this Website are owned or licensed by the Umbrella Funds, Wellington Management, its affiliates and/or its third-party providers and are protected by UK and international intellectual property laws. Unless otherwise indicated, all service marks, trademarks, and logos appearing on this Website are the exclusive property of the Wellington Management group. You may not copy, display, distribute, download, license, modify, publish, repost, reproduce, sell, transmit, use to create a derivative work, or otherwise use for public or commercial purposes the content of this Website without the prior written permission of Wellington Management.

  17. Privacy: Please see our privacy policy which is contained on this Website for information about how the Wellington Management group protects your personal data, including personal data collected through this Website. You will be asked to agree to the terms of our privacy policy when selecting your relevant jurisdiction. 

    For users in Switzerland: the data that Wellington Management collects from you may be transferred to, processed by, or stored by Wellington Management or its affiliates which may be based outside Switzerland. You acknowledge that such foreign jurisdictions do not necessarily have equivalent data protection laws compared to Switzerland. By submitting your personal data, you agree to this transfer, processing or storing.

  18. Cookies: When you visit this Website, a Wellington Management group company server will record your IP address together with the date, time, page visited and duration of your visit. Please note that the Wellington Management group uses cookies on this section of the Website. Cookies are small pieces of software that are issued to your computer or device and that store and sometimes track information about your use of the site. Cookies on this Website may collect a unique identifier, user preferences and profile information and membership information from which it is possible to identify individual users. The Wellington Management group also uses cookies to collect general usage and volume statistical information that does not include personally identifiable information. Some cookies may remain on the user’s computer after they leave this Website (these are known as persistent cookies). For more information about cookies including how to set your internet browser to reject cookies, please go to http://www.allaboutcookies.org or http://youronlinechoices.eu.

  19. The Wellington Management group has engaged one or more third party service providers to track and analyze usage and volume statistical information from visitors to this Website. The service provider(s) set cookies on behalf of the Wellington Management group. The Wellington Management group may re-associate the information provided by the technologies directly above with other personal information we hold about you. By using this Website, you agree that third parties can place cookies on your device as described above.

    • to communicate or receive information that is obscene, indecent, pornographic, sadistic, cruel, or racist in content, of a sexually explicit or graphic nature, which promotes or incites discrimination, hatred or racism or which might be legally actionable for any reason;
    • in a manner intended to threaten, harass, or intimidate;
    • to violate Wellington Management’s or any third party’s copyright, trademark, proprietary or other intellectual property rights;
    • to damage Wellington Management’s name or reputation or that of Wellington Management’s affiliated companies or any third parties;
    • to impersonate any of Wellington Management’s employees or other person or use a false name while using this Website or implying an association with Wellington Management;
    • to penetrate Wellington Management’s security measures or other entities’ systems (“hacking”);
    • to transmit unsolicited voluminous emails (for example, spamming) or to intercept, interfere with or redirect email intended for others using this Website;
    • to generate excessive amounts of internet traffic, to interfere with Wellington Management’s network or other’s use of this Website or to engage in activities designed to, or having the effect of, degrading or denying service to other users of this Website or others;
    • to introduce viruses, worms, harmful code and/or Trojan horses onto the internet or into this Website or any other entity’s systems and it is your responsibility to ensure that whatever you download or select for your use from this Website is free from such items;
    • to post or transmit information that is defamatory, fraudulent or deceptive including, but not limited to, scams such as “make-money-fast” schemes or “pyramid/chain” letters; and/or
    • to transmit confidential or proprietary information, except solely at your own risk.
  20. Linked Websites: Links to websites operated by third parties are provided for information only and do not constitute any form of advice, endorsement or recommendation of such websites or the material on them. Wellington Management accepts no responsibility for information contained on any other sites which can be accessed by hypertext link from this Website or for these sites not being available at all times. Wellington Management has not reviewed, and will not review or update, such websites or information and any use that you make of such websites and information is at your own risk. Please note that when you click on any external site hypertext link you will leave this Website. You should review the privacy statements of such websites before you provide any personal or confidential information.

  21. Website Security and Restrictions on Use: As a condition to your use of this Website, you agree that you will not, and you will not take any action intended to: (i) access data that is not intended for you; (ii) invade the privacy of, obtain the identity of, or obtain any personal information about any other user of this Website; (iii) probe, scan, or test the vulnerability of this Website or Wellington Management’s network or breach security or authentication measures without proper authorisation; (iv) attempt to interfere with service to any user, host, or network or otherwise attempt to disrupt our business; or (v) send unsolicited mail, including promotions and/or advertising of products and services. Unauthorised use of the Website, including but not limited to unauthorised entry into Wellington Management’s systems or misuse of any information posted to a web site, is strictly prohibited.

  22. Amendment: Wellington Management may delete or make changes to these Terms and to the information contained on this Website at any time. Where such amendments are made, you will be required to accept any such changes in order and prior to continue to use the Website. If you do not accept such revised Terms, you may no longer be able to access this Website. 

    If any provision of these Terms is found by any court or authority of competent jurisdiction to be illegal, void or invalid under the laws of any jurisdiction, the legality, validity or enforceability of the remainder of these Terms in that jurisdiction shall not be affected and the legality, validity and enforceability of the whole of these Terms in any other jurisdiction shall not be affected.

  23. Third Parties: The Umbrella Funds, Wellington Management, and its affiliates shall have the benefit of the rights conferred on them by these Terms but otherwise no person who is not a party to these Terms may enforce its terms under the United Kingdom Contracts (Rights of Third Parties) Act 1999.

  24. Applicable Law: These Terms and any non-contractual obligations arising from or connected with them shall be governed by, and these Terms shall be construed in accordance with, the laws of England and Wales.

  25. Jurisdiction: You agree that the English courts shall have exclusive jurisdiction in relation to any legal action or proceedings arising out of or in connection with these Terms (whether arising out of or in connection with contractual or non-contractual obligations) (“Proceedings”) and waive any objection to Proceedings in such courts on the grounds of venue or on the grounds that Proceedings have been brought in an inappropriate forum. You further agree that this paragraph operates for the benefit of the Umbrella Funds, or Wellington Management and accordingly the Umbrella Funds, or Wellington Management shall be entitled to take Proceedings in any other court or courts having jurisdiction.

  26. About Wellington Management Switzerland GmbH and the Umbrella Funds:

    Wellington Management Switzerland GmbH is registered at the commercial register of the canton of Zurich with number CH-020.4.050.857-7 and its registered office is at Limmatquai 92, 8001 Zurich. It holds a distribution license from FINMA. Its VAT number is CHE-229.706.429 MWST. Wellington Management Switzerland GmbH is an appointed distributor to the Funds.

    Wellington Luxembourg S.à r.l. is the appointed management company of Wellington Management Funds (Luxembourg). Wellington Luxembourg S.à r.l. is a société à responsabilité limitée registered in Luxembourg and authorised by the Commission de Surveillance du Secteur Financier (the CSSF) as a management company authorised under chapter 15 of the Luxembourg law of 17 December 2010 on undertakings for collective investment, as amended. Wellington Luxembourg S.à r.l.’s registered address is at 33, Avenue de la Liberté, L-1931 Luxembourg.

  27. Contact Us: If you have any enquiries in relation to this Website or the information on it, please contact Wellington Management at infofunds@wellington.com. Registered office: Limmatquai 92, CH-8001 Zurich, Switzerland.

Effective as of 21st August 2019

I ACCEPT I DECLINE

March 2020 | Multiple contributors

The coronavirus fallout: Insights from our investors

We’ve collected insights and unfinished ideas on the impact of the coronavirus from members of our macro, multi-asset, fixed income, equity, and commodities teams.

Views expressed are those of each author and are subject to change. Forward-looking statements and opinions should not be considered as guarantees or predictions of future events. Other teams may hold different views and make different investment decisions. While any third-party data used is considered reliable, its accuracy is not guaranteed. For professional or institutional investors only.


Latest content

NEW Financial market and social impacts — Our experts weigh in on coronavirus
As the coronavirus spreads across the globe, we believe educated, pragmatic insights can help our clients navigate the many disruptions. In this 30-minute audiocast, four of our investment professionals share their perspectives on the pandemic, and what it may mean for markets and society in the coming months.


Wency Cromwell

NEW The world is watching
Wendy Cromwell, CFA, Vice Chair, Director of Sustainable Investing, and Portfolio Manager
Boston

Published: 30 March 2020

During this period of unprecedented upheaval and disruption, some companies will rise to the challenge of the moment, while others will not. In many cases, their most enduring actions — and the ones that help them survive — will include ESG decisions as well as financial ones. How are companies ensuring employees’ safety? What benefits are they providing? How are they treating customers and communities? Are they evaluating the resilience of their supply chains?

During our engagement calls with executives and boards, we are asking questions like these to understand how each company is responding to the COVID-19 crisis and considering all its stakeholders. I’ve included a few of our investors’ insights here.

Carolina San Martin, CFA
Director of ESG Research

On a recent energy-company call, it was clear that the board and management have increased their focus on employees in light of the COVID-19 crisis. While they didn’t rule out layoffs down the road, their first capex cuts this week did not include any reduction in force. They plan no change in their commitment to their energy-transition strategy. In fact, management believes this crisis may accelerate action on climate change, because it has given the world a stark picture of what massive economic and societal disruption looks like. They cited a strong culture of collaboration among the board and management teams, who say functioning as a team is paying off during this crisis.

Michael Shavel, CFA
ESG Research Analyst

I think times of crisis help investors get a better sense of whether companies do what they say they do. It’s easy to publish a shiny sustainability report that highlights how employees are key assets, suppliers are partners, and customers are the lifeblood of the business. But during tough times, we get to see how boards and management view and prioritize various stakeholders. There’s no one right way to go about it, but we should at least be looking for consistency between the message we’ve been hearing and the actions being taken. A lack of consistency might suggest that we apply more skepticism to other elements of the business narrative.

Mark Whitaker, CFA
Equity Portfolio Manager

Will companies pay employees during the shutdown? How are companies prioritizing the safety of their workforce? My recollection is that after September 11, 2001, and during the global financial crisis, layoffs were broad and cold. While the subject of layoffs is always painful, I am heartened that thus far — this time, and in a small way — it feels different. When this period is over, will we be able to point to real differences? Will the view of certain corporate cultures be enhanced? I’ll be interested to see.

Prachi Shah, CFA
Global Industry Analyst

The key difference between my flow-through assumptions last week and what the company provided today, is that they will be paying some inactive labor. I think we can apply this assumption to other similar businesses. It is the right thing to do for society, and it will probably set a precedent.

Jessica Fry
Business Associate

We should keep thinking about how all companies in the portfolio interact with customers. This could be a differentiator, depending on consumers’ reaction. Many airlines and hotels are offering refunds for customers not wanting to travel. Grocery store chains are making it easier on shoppers with “elderly hours.” I think the effects on corporate culture and customer relationships are going to last a lot longer than the market impact.

Mark Mandel, CFA
Equity Portfolio Manager

One of the world's largest home-improvement retailers announced it is temporarily adjusting store hours to better serve customers and communities in response to COVID-19. The company understands that this action is essential to the communities it serves, and says it is committed to keeping stores open during times of crisis and natural disaster.

Eunhak Bae
Global Industry Analyst

On a call last night, the CEO highlighted various employee and community actions the company was undertaking. I thought it was a strong statement of its commitment to be a good corporate citizen and of confidence in its financial health. The actions included bonuses for lower-level employees, emergency-fund relief for employees facing financial hardship, supply-chain support for protective equipment, and help for small business vendors with liquidity issues. I plan to give management positive feedback when we speak to them next week.


Jens Larsen

NEW Update on ECB actions
Jens Larsen, Macro Strategist
London

Published: 27 March 2020

Key takeaways

  • The ECB has shed most of the remaining constraints on purchases. It will be able to support an aggressive expansion of sovereign issuance this year.
  • The eurozone’s fiscal response lags behind, but will catch up over the coming weeks as growth deteriorates.
  • Eurozone political leaders will likely eventually endorse using the European Stability Mechanism (ESM), but will need to go further.

ECB’s pandemic emergency measures
The ECB has published details of its €750 billion Pandemic Emergency Purchase Programme (PEPP).

When the decision was made last week, the ECB stressed the flexibility of its implementation. This decision is the practical implementation of that:

  • Greece is included in the programme.
  • The 33% limit on the share of eurozone members’ bonds that the ECB will hold under its existing programmes does not apply to the PEPP.
  • The ECB can buy across the yield curve, from very short maturities (down to 70 days) to very long ones.
  • The ECB has accepted pari-passu treatment in the event of a sovereign-debt restructuring.

Few constraints remain
The last three points were news, I believe, and demonstrate that the ECB will disregard past constraints in order to respond to the pandemic. The remaining constraint is that the purchase amounts are guided by the ECB’s capital key, which, in turn, reflects the size of the economies, rather than the size of the debt market or the current needs. That said, the ECB can temporarily deviate from that key and lean into specific markets if necessary.

Programme can scale up if necessary
With purchases of more than €1 trillion (>8.5% of GDP) before year end, the ECB has given assurance to the market that the sharp rise in debt issuance that we will see in the coming months will be absorbed. I think that is an important assurance that will keep sovereign spreads in check.

Challenging debt position of many European governments remains
Many European sovereigns will see sharp rises in issuance and in debt-to-GDP as a result of this crisis. Italy has particularly challenging dynamics, but it is not alone. The ECB will end up holding much of that increase on its balance sheet, in all likelihood for a long time. By the end of the year, the ECB will likely hold more than 30% of GDP in its asset purchase programmes. There is no reason why it should stop there.

ECB more aggressive than political leaders
Heads of government have so far failed to reach an agreement on how to approach the challenges facing the fiscally most vulnerable countries (as of 27 March 2020). I expect that they will eventually agree to use the ESM to support EU governments, whereby individual governments can draw up to 2% of GDP on credit lines with light conditionality. Any country can apply, but it is done on an individual basis, so it will still be debt. I don’t think EU leaders are ready to contemplate a ‘joint debt instrument’ that goes beyond the use of the ESM. Although such a solution would provide a helpful backstop, it would be politically challenging for many countries.

Support required beyond Italy
If a broad range of countries draw on the ESM for funding at low rates, that would effectively establish a practice of near-joint issuance of debt. All eurozone countries would be on the hook for much of this increase in debt, either via the ESM or, ultimately, via the ECB. That, I think, is the practical reality. The politics need to catch up.

Does this go far enough?
Speaking only for myself, I think it does, for now. The ECB can act aggressively in the interest of the eurozone as a whole — that is what its mandate says. It is not surprising that the eurozone’s political leaders are focused on their own national crisis, and that they struggle with decisions that have deep political and fiscal implications.

The German and Dutch (and other) governments are not willing to give grants on a large scale. Imagine the politics of handing over hundreds of billions of euros to another rich country at a point of economic crisis. I think they will ultimately be willing to lend their credit and accept that the ECB acts as a backstop, but they are not there yet.

This supports eurozone fiscal response
In comparison to the US, the discretionary increase in fiscal spending may look less impressive so far. But in the eurozone, the automatic stabilisers — the rise in spending that comes about when revenues fall and unemployment rises — are much bigger, particularly when the GDP decline is big. The ECB’s decisions and the ESM measures will ultimately buy some room for this fiscal response.


Chris Jones

NEW Credit disruption creates opportunity in high yield
Chris Jones, CFA, Fixed Income Portfolio Manager
Boston

Published: 27 March 2020

While obviously a challenging market environment, we believe that high-yield bond and bank-loan spreads, in the 97th and 98th percentiles, respectively (as of this writing), could more than compensate investors for forward-looking potential credit losses.1

  • In the case of bank loans, an average market price of around 782 implies that investors are expecting more than 50% of the market to default. However, the worst five-year cumulative default rate for loans historically has been 25.3%.3
  • Additionally, investing in high yield at spreads over 1,000 basis points (bps) and then staying invested for three or more years has historically produced annualized total returns of at least 14%.4
  • As a result, despite today’s challenges, we believe investors with a longer-term time horizon may find compelling value in the high-yield and bank-loan markets.

As of March 25, the high-yield and bank-loan indices were down between 9% and 11% over the past week and between 17% and 18% on a month-to-date basis. And high-yield and bank-loan spreads had widened by over 500 bps, with the commodity-sensitive sectors widening the most. The average bank-loan price was 78, while the option-adjusted spreads of the global and US high-yield indices were both over 1,000 bps. European high-yield spreads were a bit lower (799 bps), due primarily to a lower energy-sector weight versus global and US high yield. 5

Given that bid-ask spreads have been around 4x a normal market environment, we are mindful of the higher costs of trading. However, we think there are opportunities to add risk on the margins. In particular, we prefer businesses that are likely to be fundamentally healthy over the long term and have ample liquidity in the near term. In addition, we have begun to see increased dispersion in the high-yield and bank-loan markets, which we believe could favor some fundamental-based investment approaches.

Furthermore, we expect to see some investment-grade-rated companies, primarily in the energy sector, being downgraded to high-yield status in the coming weeks and months. We believe that many of these investment-grade downgrades will present opportunities to invest in relatively high-quality companies at potentially attractive valuations.

Looking forward on the economic front, we think it is increasingly likely that the global economy is entering a recession due to the mounting impact of the coronavirus pandemic. As a result, we anticipate that high-yield and bank-loan defaults over the next 12 months may well rise toward previous recessionary levels. We think many of these defaults are likely to occur in the commodity-sensitive sectors (e.g., energy, metals, and mining), as well as in the retail sector.

1High-yield and bank loan spreads are as of 25 March 2020. | 2Bank-loan prices are based on the S&P/LSTA Leveraged Loan Index. | 3Five-year cumulative default rates are based on annual default rates for the S&P/LSTA Leveraged Loan Index from January 1999 – February 2020. | 4Three-year forward return observations are based on the Bloomberg Barclays US High Yield Index. This analysis reflects the forward three-year total returns of the index since each month-end option-adjusted spread observation beginning 31 January 1994. The use of alternative time periods would yield different results. The spread level of the index was 1.025 basis points on 25 March 2020. Indices are unmanaged and cannot be invested into directly. | 5US high yield is represented by the Bloomberg Barclays US High Yield 2% Issuer Capped Index, European high yield by the ICE BofA/Merrill Euro High Yield Constrained Index, and global high yield by the ICE BofA/ML Global High Yield Constrained Index.


Matt Bullock

NEW The importance of staying invested
Matt Bullock, Investment Director
London

Published: 26 March 2020

At times like this, it never hurts to dust off basic, time-tested principles — like the importance of staying invested through thick and thin — that even sophisticated investors may lose sight of when fear takes hold. While we don’t yet know how long the COVID-19 crisis will last, the extent of its economic impact, or when markets will bounce back, here’s what we do know.

  • Investor returns would have suffered greatly from missing the market’s best days. The MSCI World Index1 returned 7.52% annualized for the 15 years ended December 2019, but investors who missed the 10 best days from that period would have earned less than half of the market’s return. And missing the 40 top-performing days would have resulted in a loss of 2.51% (Figure 1)!
  • Trying to “time” the market is difficult, if not impossible. Of those 40 top-performing days, more than half (22) occurred in 2008 and 2009, around the time of the global financial crisis. So, ironically, I suspect many panicked investors who sold equities during that period, in an ill-advised effort to avoid the market’s worst days, may have missed some of its best days.
  • I believe the best approach is often to simply stay the course. The market will eventually recover from the current crisis, and when it does, you want to be positioned to participate in the upswing. That’s why it is important to keep your emotions in check and adhere to a disciplined, long-term investment strategy, painful though that might be in the short run.

FIGURE 1
Missing the best days in the MSCI World Index

1The MSCI World Index is a widely used proxy for global equity markets.


Henri Fouda

NEW US dollar – transient headache
Henri Fouda, Portfolio Manager, Investment Boutiques
Boston

Published: 26 March 2020

Why has the US dollar spiked?
I have long believed that the carry advantage of the US dollar was unsustainable. The coronavirus crisis has precipitated the collapse of that carry advantage. The world, especially the developed world, is flat, with no real carry-trade advantage in evidence anywhere.

If monetary and fiscal policies were the only variables affecting the exchange rate, the effective dollar exchange rate would be lower as a result of the relative actions of jurisdictions across the globe. Instead of dropping, however, the dollar’s effective exchange rate has spiked sharply. Market commentators have advanced several theories as to why: liquidity, uncertainty-driven dollar hoarding, risk aversion, the US having the strongest army in the world, the dollar as a reserve currency, margin calls, and so on, all of which may be contributing.

The common underlying theme seems to be the anticipated contraction of the world economy subject to a dual supply and demand shock, with economic activity coming to a standstill in some sectors. Such discontinuities are not usually incorporated into standard economic models. Harvard University Economist Dr Kenneth Rogoff recently likened the current situation to a war in economic terms.

Will currency markets “self-heal”?
Daily exchange rate fluctuations represent not only investment and speculative demand, but also the day-to-day demand that supports commerce, tourism, and all other economic activities. Disruption, or the anticipation of disruption, of those activities could lead to sharp movements in exchange rates. Those disruptions, in my opinion, should be transitory rather than permanent, because exchange rate excesses are “self-healing.”

An example in recent memory is the Swiss franc. It was brutally “unpegged” from the euro during the European financial crisis. This sparked a sharp revaluation. But given the reality that Switzerland was competing directly with its EU neighbors, the exchange rates had to adjust quickly the other way to reflect Switzerland’s less competitive situation.

Look for a correction
Likewise, when normal economic activity resumes — or economic agents anticipate its resumption — it will become apparent that the dollar’s effective exchange rate at the current level is crippling the US and world economies. The dollar will correct and potentially overshoot in the opposite direction. In fact, a sustainable correction of the dollar’s effective exchange rate might be an early sign that activity is “normalizing.”


Mark Mandel

NEW Saints and sinners
Mark Mandel, CFA, Equity Portfolio Manager
Boston

Published: 25 March 2020

This crisis represents a seminal moment for responsible investing. To this juncture, many portfolio managers have understandably struggled to incorporate environmental, social, and governance (ESG) into their investing frameworks. ESG can feel steps removed from buy/sell decisions and seem arbitrary, as though conclusions are reached by applying personal values.

I see this changing right now. Starting with Wellington’s recent virtual Consumer Conference, and continuing over the past couple of weeks, we have had hundreds of touch points with company management teams. Those conversations have broached topics affecting a wide range of stakeholders:

  • Is management working from home?
  • Who is coming into your offices/stores/warehouses/factories?
  • How are you dealing with employees?
  • How are you accommodating customers?
  • Are you building supply-chain resilience?
  • What’s happening in your local communities?

These discussions have felt natural, because they are very relevant to long-term shareholder value. Stakeholders will remember companies’ actions during this crisis for a long time. The ability to hire, rehire, and retain talent will be shaped by reputations developed now. Brand loyalty may be gained, strengthened, or lost based on how customers are treated. And so on. If an investor is asking questions like these today and considering the inputs when making investment decisions, then ESG is part of their framework.

For better and for worse, the media is becoming more focused on corporate behavior. The Financial Times has added a “Saints and Sinners” section to its Moral Money newsletter, this week lauding a few producers of emergency health care supplies and criticizing a few online retailers, pharmaceuticals, and even professional sports teams.

Our colleague John Averill asked in Morning Meeting yesterday about best practices for treating employees during this crisis. I have learned that the answers are very case-specific. Some companies that have financial flexibility and benefit from strong current business trends can go a long way to help. Technology companies and grocery chains are two that come to mind. Some companies may want to do the right thing but are less flexible, hamstrung by the size of their workforce and the realities of the current environment. Hotel chains or food service companies are recent examples. Even companies that seem best-positioned to weather this storm may have to grapple with important employee welfare issues, including childcare, heightened stress levels, and, of course, illness.

In his recent book, Skin in the Game, author Nassim Taleb talks about via negative; essentially, we know what is wrong with more clarity than we know what is right. I find this to be especially true about company actions today, and about ESG in general.

In sum, there is no one “right” approach for companies to take. Each must consider a matrix of options and stakeholders, including employees, customers, and shareholders. And their choices are constrained by their specific financial reality. Investors need to apply judgment, just as with traditional fundamental analysis: Is a company doing a good job reaching balanced decisions, given the multidimensional issues it faces? Are management’s choices consistent with its culture and strategy? Are these behaviors consistent with the reasons why you own the stock, and with your time horizon for investing?


Additional content

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Macro views

Jens Larsen

NEW Update on ECB actions
Jens Larsen, Macro Strategist
London

Published: 27 March 2020

Key takeaways

  • The ECB has shed most of the remaining constraints on purchases. It will be able to support an aggressive expansion of sovereign issuance this year.
  • The eurozone’s fiscal response lags behind, but will catch up over the coming weeks as growth deteriorates.
  • Eurozone political leaders will likely eventually endorse using the European Stability Mechanism (ESM), but will need to go further.

ECB’s pandemic emergency measures
The ECB has published details of its €750 billion Pandemic Emergency Purchase Programme (PEPP).

When the decision was made last week, the ECB stressed the flexibility of its implementation. This decision is the practical implementation of that:

  • Greece is included in the programme.
  • The 33% limit on the share of eurozone members’ bonds that the ECB will hold under its existing programmes does not apply to the PEPP.
  • The ECB can buy across the yield curve, from very short maturities (down to 70 days) to very long ones.
  • The ECB has accepted pari-passu treatment in the event of a sovereign-debt restructuring.

Few constraints remain
The last three points were news, I believe, and demonstrate that the ECB will disregard past constraints in order to respond to the pandemic. The remaining constraint is that the purchase amounts are guided by the ECB’s capital key, which, in turn, reflects the size of the economies, rather than the size of the debt market or the current needs. That said, the ECB can temporarily deviate from that key and lean into specific markets if necessary.

Programme can scale up if necessary
With purchases of more than €1 trillion (>8.5% of GDP) before year end, the ECB has given assurance to the market that the sharp rise in debt issuance that we will see in the coming months will be absorbed. I think that is an important assurance that will keep sovereign spreads in check.

Challenging debt position of many European governments remains
Many European sovereigns will see sharp rises in issuance and in debt-to-GDP as a result of this crisis. Italy has particularly challenging dynamics, but it is not alone. The ECB will end up holding much of that increase on its balance sheet, in all likelihood for a long time. By the end of the year, the ECB will likely hold more than 30% of GDP in its asset purchase programmes. There is no reason why it should stop there.

ECB more aggressive than political leaders
Heads of government have so far failed to reach an agreement on how to approach the challenges facing the fiscally most vulnerable countries (as of 27 March 2020). I expect that they will eventually agree to use the ESM to support EU governments, whereby individual governments can draw up to 2% of GDP on credit lines with light conditionality. Any country can apply, but it is done on an individual basis, so it will still be debt. I don’t think EU leaders are ready to contemplate a ‘joint debt instrument’ that goes beyond the use of the ESM. Although such a solution would provide a helpful backstop, it would be politically challenging for many countries.

Support required beyond Italy
If a broad range of countries draw on the ESM for funding at low rates, that would effectively establish a practice of near-joint issuance of debt. All eurozone countries would be on the hook for much of this increase in debt, either via the ESM or, ultimately, via the ECB. That, I think, is the practical reality. The politics need to catch up.

Does this go far enough?
Speaking only for myself, I think it does, for now. The ECB can act aggressively in the interest of the eurozone as a whole — that is what its mandate says. It is not surprising that the eurozone’s political leaders are focused on their own national crisis, and that they struggle with decisions that have deep political and fiscal implications.

The German and Dutch (and other) governments are not willing to give grants on a large scale. Imagine the politics of handing over hundreds of billions of euros to another rich country at a point of economic crisis. I think they will ultimately be willing to lend their credit and accept that the ECB acts as a backstop, but they are not there yet.

This supports eurozone fiscal response
In comparison to the US, the discretionary increase in fiscal spending may look less impressive so far. But in the eurozone, the automatic stabilisers — the rise in spending that comes about when revenues fall and unemployment rises — are much bigger, particularly when the GDP decline is big. The ECB’s decisions and the ESM measures will ultimately buy some room for this fiscal response.


Mike Medeiros

Fiscal package helpful, but not a panacea
Michael Medeiros, CFA, Macro Strategist
Boston

Published: 19 March 2020

I think Congress will pass a large piece of fiscal legislation over the next month or so in response to the coronavirus fallout. Subsequent legislation is also possible, depending on the duration of the economic downturn. Given the ideological differences between Democrats and Republicans (and within the parties themselves), the legislative process could easily fail once or twice before ultimate enactment. Any legislation will need to be bipartisan enough to garner the 60 necessary votes in the Senate.

That said, I think Congress will pass something relatively soon, perhaps as early as this week, with an initial size of between 3% – 5% of GDP. (Risks are skewed toward more.) The speed with which equity markets have declined, especially over the past week, has sharpened the urgency within both the Trump administration and Congress. Going forward, Congress can and likely will do more, but perhaps only if markets and the economy weaken further. I expect legislators to continue to be reactive, not proactive.

It’s all about the details
The details of the legislation will matter. Republicans are coalescing around a plan that would include three buckets: tax cuts/cash payments to individuals, small-business lending facilities, and industry support (notably for airlines). Democrats could support individual assistance (as long as it’s means-tested) and small-business lending support, but they’re also pushing for public health infrastructure (e.g., hospitals, supplies), expanded unemployment insurance, and some loan forbearance measures.

The industry-specific support, starting with airlines could be a sticking point. If Democrats go along with it, they may push to add restrictions such as those suggested by Elizabeth Warren, which include worker and consumer protections, as well as minimum wage stipulations and share buyback limits. It’s not clear if Republicans would agree to such restrictions, and I think the bar for industry bailouts is much higher today than in 2008 – 2009. However, if the two parties find common ground on this, it would open the door to supporting other industries too (not just airlines).

Right now, here’s my sense of what is being proposed, including the upper end, in terms of cost, that could be agreed upon by both sides initially:

  1. Individual support (US$500 bn)
    • Some combination of tax rebates and individual checks (mailed in two tranches)
    • Democrats likely to push for, and secure, means-testing for both rebates and checks
  2. Automatic stabilizers ($200 bn)
    • Expanded unemployment insurance and Medicaid funding to states
    • Republicans likely to push back on some spending, but Senate Democrats have leverage
  3. Small business (US$250 bn)
    • Small Business Administration (SBA) emergency lending
    • Creation of a new small-business lending facility
  4. Industry-specific support (US$50 bn – US$200 bn)
    • US$50 bn to airlines, if stipulations and conditions can be agreed upon
    • Could lead to support for other negatively impacted sectors
    • Of course, if the public health system gets overrun, then bailouts and the federal debt burden would grow materially.
  5. Public health/other (US$400 bn)
    • Public health funding to states
    • Federal mortgage loan forbearance
    • Student loan agreement modifications

Medium-term implications
While the proposed fiscal package is substantial and could even grow, so far it appears to be a combination of automatic stabilizers and temporary income assistance. Helpful? Of course, especially if Republicans agree to public health investments, but likely not a “cure-all.” That would require science and a more significant investment in public health infrastructure to attack the underlying nature of the crisis. More cash won’t make people go out and spend until the health threat subsides meaningfully.

In the medium term, the proposed bill would also worsen what is already a deteriorating public-debt backdrop. Federal debt as a percentage of GDP is already the highest since World War II. If we assume the pending fiscal package in the context of a recession, that figure would approach 150% of GDP over the next decade. Without any medium-term restraints on entitlement spending, this could have major implications for the fiscal premium in long bonds. It seems the market is already sniffing that out, despite the still historically low level of yields. In conjunction with recent Fed actions, Modern Monetary Theory type policy could be taking hold, without policymakers specifically calling it that.

Bottom line
Congress should eventually enact a fiscal package worth at least 3% – 5% of GDP, but one geared toward automatic stabilizers and one-time consumer assistance. A panacea it is not. And the fiscal easing would come in the context of a rapidly worsening federal debt trajectory, with potentially big implications for longer-dated Treasuries.


John Butler

The ECB acts – now it’s up to governments
John Butler, Macro Strategist
London

Published: 19 March 2020

The ECB has taken much-needed action, targeting yields and spreads and providing full monetary financing of “whatever it costs” to address the coronavirus crisis. Now European governments need to deliver an appropriate fiscal response.

Late last night, the ECB announced an additional asset purchase programme:

  • It includes €750 billion of extra purchases.
  • This will run at least until the end of the year but potentially beyond if the coronavirus crisis persists.
  • Although over the duration it will adhere to the capital key (which reflects each country’s share of the EU’s population and GDP), the ECB can front load or deviate from the key for a particular country for a period of time.
  • The purchases will include Greek assets.
  • It will widen the eligible assets under the corporate-sector purchase programme to include non-financial commercial paper.
  • The ECB will consider dropping the 33% issuer limit.
  • And the ECB stands ready to expand the programme further.

This is clearly a move in the right direction, fundamentally changing the message from the ECB’s previous press conference. It is prepared to finance the cost of tackling the crisis and is now targeting yields and spreads, which need to compress hard. The additional asset purchases for this year amount to €870 billion. Together with the existing programme, it will buy €1.05 billion of assets in the remainder of 2020. This is the fastest monthly pace of purchases the ECB has ever done, equivalent to 7.3% of GDP. The ECB can target a sovereign spread and is considering dropping its self-imposed limit on purchases of an individual issuer.

These are helpful and necessary steps. But now the fiscal authorities need to use the space created by the ECB. This shock is about permanent losses in income. Unless the fiscal authorities can make those losses good, there will be a sharp spike higher in unemployment, protracted weak demand and a period in which households and corporates need to rebuild their balance sheets. This monetary response alone will not prevent a deep and long economic hit. The euro area fiscal response has to be on an appropriate scale, not the 1% on average of fiscal loosening currently announced. We await the next step.


John Butler

ECB response to COVID-19 underwhelming
John Butler, Macro Strategist
London

Published: 17 March 2020

On March 12, the European Central Bank (ECB) announced a disappointing package of measures in response to the COVID-19 outbreak. Despite noting a “considerable worsening in the outlook”, the ECB just doesn’t have the tools to resolve or offset this crisis.

Some of the fundamental assumptions that have underpinned asset prices are myths, including the central bank “put” and the ECB president stating that it “will do whatever it takes”.

In its March 12 statement, the ECB said, “Governments and all other policy institutions are called upon to take timely and targeted actions to address the public health challenge” and ECB President Christine Lagarde said, “We are not here to close spreads”.

This response is in stark contrast with the appearance of coordinated action in the UK. The Bank of England surprised markets on March 11 with an intra-meeting announcement of a series of actions, the same day the UK government committed itself to substantial and sustained fiscal loosening in its latest Budget.

Measures
The ECB expanded its asset purchase programme by €120 billion (€13 billion a month) until year end, skewed to corporates; announced more and generous liquidity facilities for SMEs; and eased the capital and liquidity buffer for banks. It decided not to cut interest rates.

The ECB cannot offset the economic shock ahead. That requires fiscal and health care responses. However, the message the ECB sent was:

  1. The ECB is prepared to underwhelm market expectations — either because of its new membership or because it just doesn’t have the tools.
  2. The ECB views this as temporary. The long-term refinancing operation is temporary and quantitative easing (QE) will extend until year end, so the ECB has reverted to making additional QE time dependent rather than state dependent.
  3. The ECB is irrelevant. It can’t cut rates. The additional QE is only €10 – €13 billion a month, whereas the market assumed it would be €20 billion.

There is a high probability we will soon be exploring the tail risks for the euro area.

We know this shock isn’t about rate cuts, QE and liquidity. Italy could be squeezed out of the markets over the coming days and weeks. The issue then becomes whether neighbouring countries are willing to share risks, or not, unconditionally. This could be the moment when the eurozone needs to answer this question, which has been left unanswered since the start.

The way the region has responded to the question to date is by setting up an infrastructure that forces a neighbour to adhere strictly to a programme (European Stability Mechanism), which will be monitored. For a democratic country, that will feel like punishment. And this is the type of shock where terms and conditions that feel like punishment could backfire.

We are a giant step closer to understanding that former ECB President Mario Draghi’s promise that the “ECB will do whatever it takes” was a myth that provided a powerful blanket over the region for eight years. Ultimately, it is a political decision. Yet no one can be confident about how politicians will answer that question because they themselves don’t appear to know. And, relative to 10 years ago, Europe’s politicians appear weaker and more divided.

The COVID-19 crisis could result in each country exposing its voter base to the liabilities of its neighbours. The coronavirus outbreak might then go down in history as the external shock that made the euro sustainable. Alternatively, it could result in national governments protecting and insulating their nations, which could ultimately fragment the single currency.

Closing thoughts
Once the market downgrades the value of the ECB’s shield, it will find a way of asking the question. Experience has shown that politicians only give an answer when the eurozone is dangling on the edge, not pre-emptively. We may be close to having to price in that question.


Eoin O’Callaghan

How does a global recession turn into a financial crisis?
Eoin O’Callaghan, Macro Strategist
London

Published: 9 March 2020

A coronavirus-driven global recession now looks likely. The longer the shock lasts, the bigger the risk it spills over into market stress given the high level of debt in the system and low level of global liquidity growth going into this shock. This is a critical risk we are monitoring along several dimensions:

  • Global liquidity – There is a risk that the hit from coronavirus could turn into a global liquidity shock, compounding the drag on growth. Going into the coronavirus shock, global liquidity growth was close to 30-year lows. Both central bank liquidity (monetary base + FX reserves) and deposit liquidity (M2) were starting to improve at the turn of this year but remained very low by historical standards.
  • Funding stress – Some measures of stress have started to widen over the past few days. For example, the FRA-OIS spread (difference between 3-month Libor and the Overnight Indexed Swap rate) was up to 40 bps as of this writing, the levels we saw last year before the Fed stepped in. But that is still only just over half the peaks we saw in 2012 (70 bps) and a fraction of the levels (140 bps) we saw during the global financial crisis.
  • Global FX reserve growth – Global FX reserves could be particularly vulnerable to a significant slowdown. Weaker commodity prices, a faster contraction in global trade, and a stronger dollar would all put downward pressure on global liquidity. Recent weakness in the US dollar could be a positive development in that regard if it can continue, especially if it leads to stronger commodity prices. And if developed market central banks start to reaccelerate asset purchases/inject liquidity, it could provide a further offset. But I believe the risk is skewed toward a significant fall in FX reserves.

John Butler

Central bank action
John Butler, Macro Strategist, Team Leader
London

Published: 5 March 2020

What did we learn following the recent central bank action? If we didn’t already know it, central banks can’t save the day. Yes, the Fed and probably other central banks will always respond to sharp declines in equities. But…

  • The central bank put is worth less. This isn’t a shock where more stimulus generates earnings or nominal growth. I think we are a large step closer to understanding the central bank put. That “put” is now about keeping the system together and liquid rather than generating and nurturing nominal growth. That is critical. However, its potency is likely to be much lower and events are likely to overwhelm and mean its ability to boost confidence expires quickly.
  • The statement from the G7 was a coordinated message of uncoordinated action. Other central banks will follow the Fed, but the tools used will vary and become more complicated and targeted. Similarly, looser fiscal will come but it’ll likely be uncoordinated, country-by-country and targeted at stabilisation — replacing lost income and debt servicing — rather than incentivising spending or investment.

Monetary and fiscal policy will potentially become potent again but only if the case count globally quickly stabilises, there is a medical breakthrough, and/or the world learns to live with the higher virus risk. It feels like we are still some way from that.

Instead, what’s ahead is a hit to global growth and earnings that is likely to be harder and longer lasting. Global growth will contract. And the longer and deeper the shock, the more the market will need to assign a bigger probability that this becomes a risk to financial stability and undermines the ability to service debt at a time when the level of debt in the global system is at record highs. We need to have some confidence we know what the floor looks like before we can start thinking about the sky. We are still in downside discovery mode.


Paul Cavey

The impact on China and its neighbors
Paul Cavey, Macro Strategist
Hong Kong

Published: 5 March 2020

Looking at the latest purchasing managers’ index (PMI) data, it is now clear that the economic impact of the virus on China is immense. We’ve never seen anything quite like this, even during the global financial crisis (GFC). Essentially, China’s economy came to a sudden stop during the course of February, and that meant that official PMIs were down under 30, which we’ve never seen before. That said, there are some signs that the economy is beginning to normalize and turn around. The recovery remains very slow, but it does look like the worst is over and the economy should be recovering to perhaps 85% in the next couple of months or so.

Now the focus begins to shift to neighboring economies around China, and foremost among them is Hong Kong. There had been signs of stabilization in Hong Kong following the protests, but the virus has now delivered a second blow. Other countries we’re watching include Taiwan, Korea, and Japan, which can be affected by the manufacturing cycle and disruptions in supply chains — all of which we’re seeing evidence of in PMI data. Tourism inflows are also being affected, particularly in Japan and Korea. Governments in those countries are taking the outbreak very seriously, which will depress domestic services activity.

Looking ahead, the PMI data in China suggests that producers are actually quite optimistic about the next 12 months. In fact, the 12-month indicator rose to the fastest level in the last five years. On the other hand, if you look at Taiwan, the 12-month indicator fell quite sharply, to depths we haven’t seen since 2015. What all this suggests is that the impact of the virus in China has been extremely sharp, but it’s probably going to be quite short. In economies like Taiwan’s and Korea’s, the impact may not be as sharp, but it may be more prolonged. So the focus in coming weeks and months will shift from China to the neighboring countries.


Juhi Dhawan

The US economic impact
Juhi Dhawan, PhD, Macro Strategist
Boston

Published: 5 March 2020

Studies suggest that a mild pandemic could take about 1% off US growth (“mild” is defined as infecting 25% of the population with fatalities of 100,000). Roughly 60% of the output lost during a pandemic is due to prevention measures, like the lockdowns and travel bans we are seeing worldwide. In terms of sectors, leisure, entertainment, and transport have been hardest hit during pandemics. Health care is the one area that has gained. Areas like professional services, finance, and government tend to hold steady. This means that roughly 7.5% of GDP and 15% of employment are at risk on the service side (ancillary industries such as retail and wholesale also feel the pain). This is in addition to the beleaguered manufacturing sector (11% of output and 8.5% of employment), where hours have already been cut to the bone and layoffs are likely to pick up.

I expect the drop-off in US activity to gather pace in March and April and then taper off by June. The recent improvement in China suggests better export/import outcomes starting later in the second quarter. On the other hand, leisure and entertainment could be negatively impacted through the third quarter, with the outcome really a function of the evolution of the virus in the US and any progress on treatments and vaccines. For now, I am assuming that there is some attenuation by June but still a tepid turn after. Profits would follow a similar trajectory — down in the middle of the year but better by year end. Dollar funding for companies could be an issue on a cross-border basis as there will be many missed payments in the supply chains due to disruption. This can cause disruptions in the economy and financial markets.

US and global policy response to this virus could represent an important shift for the global economy. The policies that are likely to be most immediately effective in this situation are credit easing, forbearance, and liquidity extension. The key is to keep businesses from laying off workers due to the fall-off in demand/supply, which will eventually recover. Government spending comes next on the priority list, to help rebuild confidence in the economy and put dollars to work if the private sector is reluctant or unable to do so. Last is monetary policy, which works with a lag but can help with liquidity and the functioning of credit markets, while also, in the case of the US, giving more space to the rest of the world to ease. The election-year calculus muddies the fiscal stimulus picture in the US. However, if the situation deteriorates, both parties will push hard to help the consumer and displaced workers, as no one will want to go into the election as the party that did not help voters.

The upside case? The consumer has been the bedrock of this expansion and lower energy prices and low interest rates will absolutely help. If we can institute some policies of forbearance, the ride over the next few months will become smoother. The “containment period” would then be equivalent to a precautionary rise in the savings rate, which would be unwound when conditions improve. While the near term is cloudy, the rebound, when it comes, could be powerful. Inventory levels will be severely depleted, central banks are sitting on negative real rates, and fiscal stimulus in China could give the global economy a jump-start in 2021.


Jens Larsen

The euro-area impact
Jens Larsen, PhD, Macro Strategist
London

Published: 5 March 2020

My focus here is on the euro area, and on assessing the economic and financial mechanisms that might turn this into a longer-lasting recession and financial crisis.

My key points:

  • The key risk is that the supply side suffers long-lasting damage through supply-chain disruption, extended job losses/financial failures, and a credit crunch.
  • The euro-area financial system has capital capacity to absorb losses and plenty of liquidity — but banks may decide to contract the balance sheet anyway.
  • The economic and financial policy response should focus on preventing a credit crunch and avoiding unnecessary job losses/bankruptcies through a flexible use of government balance sheets. Lower interest rates and tax cuts won’t make much of a difference.

Going forward, I am looking for indications of distress in the corporate sector, but also indicators of banks starting to limit access to credit and aggressively protecting their balance sheets. What about policy? I would argue that conventional monetary and demand management policies (for instance, tax cuts) have a limited role to play here. I am looking for measures to support liquidity and fund the corporate and financial sectors, and measures to provide targeted (and temporary) fiscal support.

I am mildly encouraged by the early signs that the euro-area governments might provide temporary relief to the private sector — Italy announced a small program that isn’t transformative but is a sign of thinking along the right lines. The right response here is to allow automatic fiscal stabilisers to work, intervene to support corporates at risk, and refrain from calling for fiscal consolidation.


Thomas Mucha

Geopolitical pressure points
Thomas Mucha, Geopolitical Strategist
Boston

Published: 5 March 2020

Two quick points here:

US-China relations: As you’ve all heard me say for a long time, the US-China relationship is in structural decline and is now centered on “great power” competition — an increasingly hawkish posture that is today bipartisan and, importantly for the long term, institutionalized in the new US national security strategy. Official Washington has turned a corner on China, and this more competitive framework is driving almost all national security policy conversations, including the response to COVID-19.

Among my national security contacts, the consensus view is that US-China relations are about to get worse as a result of the virus. There’s also a growing consensus that COVID-19 is likely to accelerate economic and trade decoupling between the US and China, particularly in sectors critical to national security (the usual suspects: tech- and defense-procurement supply chains, biotech, pharmaceuticals, etc.). So, the deglobalization theme remains a key focus.

Spread of virus to ill-prepared countries: This remains the bigger immediate geopolitical risk, given the high levels of domestic political instability and dysfunction we’re seeing globally right now and in recent months (Syria/Turkey/Russia, Iran, North Korea, Lebanon, Hong Kong, Chile, Venezuela, and on and on). The national security concerns here are straightforward: Will the virus spread uncontrollably to countries that can’t handle it due to conflict, weak institutions, poor health infrastructure, etc., and overwhelm a government’s capacity to manage a widespread outbreak? Iran is the poster child of this concern right now, given its poor official handling of the crisis so far, with North Korea another potential problem area.

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Multi-asset views

Matt Bullock

NEW The importance of staying invested
Matt Bullock, Investment Director
London

Published: 26 March 2020

At times like this, it never hurts to dust off basic, time-tested principles — like the importance of staying invested through thick and thin — that even sophisticated investors may lose sight of when fear takes hold. While we don’t yet know how long the COVID-19 crisis will last, the extent of its economic impact, or when markets will bounce back, here’s what we do know.

  • Investor returns would have suffered greatly from missing the market’s best days. The MSCI World Index1 returned 7.52% annualized for the 15 years ended December 2019, but investors who missed the 10 best days from that period would have earned less than half of the market’s return. And missing the 40 top-performing days would have resulted in a loss of 2.51% (Figure 1)!
  • Trying to “time” the market is difficult, if not impossible. Of those 40 top-performing days, more than half (22) occurred in 2008 and 2009, around the time of the global financial crisis. So, ironically, I suspect many panicked investors who sold equities during that period, in an ill-advised effort to avoid the market’s worst days, may have missed some of its best days.
  • I believe the best approach is often to simply stay the course. The market will eventually recover from the current crisis, and when it does, you want to be positioned to participate in the upswing. That’s why it is important to keep your emotions in check and adhere to a disciplined, long-term investment strategy, painful though that might be in the short run.

FIGURE 1
Missing the best days in the MSCI World Index

1The MSCI World Index is a widely used proxy for global equity markets.


Scott Elliott

The beginning of the bottoming process?
Scott Elliott, Portfolio Manager, Multi-asset inflation hedges
Boston

Published: 5 March 2020

There will be a tremendous amount of stimulus (lower rates, lower oil prices, more fiscal stimulus) and a release of pent-up demand coming out of this slowdown, which should be over by May. It will be put into a global economy that is already functioning near full capacity when everyone gets back to work.

Market participants were pretty long heading into this downturn, which has accentuated the selling. But I’m guessing this has now been largely adjusted given the volume of selling. As one of my colleagues used to say, “Bottoms are processes not events.” This one is a perfect candidate. I think the bottoming process has now started. Two weeks ago, the market was only focused on China, while scientists were warning of a global epidemic. Now the financial consensus is more aligned with the scientific consensus. A recession is now in global financial prices. Sure, we could decline more, but odds have now become asymmetric, favoring the upside on a 6 – 12 month time horizon, even assuming a contraction that lasts through May.

The news over the next several weeks will be very bad indeed. But you don’t get good prices and good news on the same day, and we are finally beginning to get good prices. The time to panic is over, a temporary global shutdown is being discounted, and we should now be focused on the patient accumulation of attractively priced long-term assets.

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Fixed Income views

Chris Jones

NEW Credit disruption creates opportunity in high yield
Chris Jones, CFA, Fixed Income Portfolio Manager
Boston

Published: 27 March 2020

While obviously a challenging market environment, we believe that high-yield bond and bank-loan spreads, in the 97th and 98th percentiles, respectively (as of this writing), could more than compensate investors for forward-looking potential credit losses.1

  • In the case of bank loans, an average market price of around 782 implies that investors are expecting more than 50% of the market to default. However, the worst five-year cumulative default rate for loans historically has been 25.3%.3
  • Additionally, investing in high yield at spreads over 1,000 basis points (bps) and then staying invested for three or more years has historically produced annualized total returns of at least 14%.4
  • As a result, despite today’s challenges, we believe investors with a longer-term time horizon may find compelling value in the high-yield and bank-loan markets.

As of March 25, the high-yield and bank-loan indices were down between 9% and 11% over the past week and between 17% and 18% on a month-to-date basis. And high-yield and bank-loan spreads had widened by over 500 bps, with the commodity-sensitive sectors widening the most. The average bank-loan price was 78, while the option-adjusted spreads of the global and US high-yield indices were both over 1,000 bps. European high-yield spreads were a bit lower (799 bps), due primarily to a lower energy-sector weight versus global and US high yield. 5

Given that bid-ask spreads have been around 4x a normal market environment, we are mindful of the higher costs of trading. However, we think there are opportunities to add risk on the margins. In particular, we prefer businesses that are likely to be fundamentally healthy over the long term and have ample liquidity in the near term. In addition, we have begun to see increased dispersion in the high-yield and bank-loan markets, which we believe could favor some fundamental-based investment approaches.

Furthermore, we expect to see some investment-grade-rated companies, primarily in the energy sector, being downgraded to high-yield status in the coming weeks and months. We believe that many of these investment-grade downgrades will present opportunities to invest in relatively high-quality companies at potentially attractive valuations.

Looking forward on the economic front, we think it is increasingly likely that the global economy is entering a recession due to the mounting impact of the coronavirus pandemic. As a result, we anticipate that high-yield and bank-loan defaults over the next 12 months may well rise toward previous recessionary levels. We think many of these defaults are likely to occur in the commodity-sensitive sectors (e.g., energy, metals, and mining), as well as in the retail sector.

1High-yield and bank loan spreads are as of 25 March 2020. | 2Bank-loan prices are based on the S&P/LSTA Leveraged Loan Index. | 3Five-year cumulative default rates are based on annual default rates for the S&P/LSTA Leveraged Loan Index from January 1999 – February 2020. | 4Three-year forward return observations are based on the Bloomberg Barclays US High Yield Index. This analysis reflects the forward three-year total returns of the index since each month-end option-adjusted spread observation beginning 31 January 1994. The use of alternative time periods would yield different results. The spread level of the index was 1.025 basis points on 25 March 2020. Indices are unmanaged and cannot be invested into directly. | 5US high yield is represented by the Bloomberg Barclays US High Yield 2% Issuer Capped Index, European high yield by the ICE BofA/Merrill Euro High Yield Constrained Index, and global high yield by the ICE BofA/ML Global High Yield Constrained Index.


Henri Fouda

NEW US dollar – transient headache
Henri Fouda, Portfolio Manager, Investment Boutiques
Boston

Published: 26 March 2020

Why has the US dollar spiked?
I have long believed that the carry advantage of the US dollar was unsustainable. The coronavirus crisis has precipitated the collapse of that carry advantage. The world, especially the developed world, is flat, with no real carry-trade advantage in evidence anywhere.

If monetary and fiscal policies were the only variables affecting the exchange rate, the effective dollar exchange rate would be lower as a result of the relative actions of jurisdictions across the globe. Instead of dropping, however, the dollar’s effective exchange rate has spiked sharply. Market commentators have advanced several theories as to why: liquidity, uncertainty-driven dollar hoarding, risk aversion, the US having the strongest army in the world, the dollar as a reserve currency, margin calls, and so on, all of which may be contributing.

The common underlying theme seems to be the anticipated contraction of the world economy subject to a dual supply and demand shock, with economic activity coming to a standstill in some sectors. Such discontinuities are not usually incorporated into standard economic models. Harvard University Economist Dr Kenneth Rogoff recently likened the current situation to a war in economic terms.

Will currency markets “self-heal”?
Daily exchange rate fluctuations represent not only investment and speculative demand, but also the day-to-day demand that supports commerce, tourism, and all other economic activities. Disruption, or the anticipation of disruption, of those activities could lead to sharp movements in exchange rates. Those disruptions, in my opinion, should be transitory rather than permanent, because exchange rate excesses are “self-healing.”

An example in recent memory is the Swiss franc. It was brutally “unpegged” from the euro during the European financial crisis. This sparked a sharp revaluation. But given the reality that Switzerland was competing directly with its EU neighbors, the exchange rates had to adjust quickly the other way to reflect Switzerland’s less competitive situation.

Look for a correction
Likewise, when normal economic activity resumes — or economic agents anticipate its resumption — it will become apparent that the dollar’s effective exchange rate at the current level is crippling the US and world economies. The dollar will correct and potentially overshoot in the opposite direction. In fact, a sustainable correction of the dollar’s effective exchange rate might be an early sign that activity is “normalizing.”


Dave Marshak

Bank loans at an attractive discount
David Marshak, Fixed Income Portfolio Manager
Boston

Published: 23 March 2020

Over the past few weeks, growing concerns around the coronavirus and its potential impact on the global economy have caused steep declines in financial markets. The bank loan market has not been immune from this weakness: The average dollar price of the S&P/LSTA Leveraged Loan Index1 was 78.4 as of 19 March.

Current index price levels imply that roughly 45% of the loan market is going to default.2 To put that in historical context, the highest trailing 12-month default rate actually experienced by the bank loan market was just above 12% in November 2009.3

Using a medium-term outlook, it is our view that the market is oversold at these levels. While we do expect the default rate to increase, primarily in the commodity-sensitive sectors, we don’t believe it will come anywhere near 45%. As a result, we believe the current market offers attractive price appreciation and total-return potential for bank loan investors with a longer time horizon.

And while past performance is no guarantee, I think history is on our side: If investors had bought bank loans at similar prices to today’s in the past, including at the height of the global financial crisis, they would have enjoyed double-digit returns in the following 12 months. In fact, investors who were contrarian during the oversold conditions of 2008 were rewarded handsomely when the market snapped back and returned over 51% in 2009!

1The S&P/LSTA Leveraged Loan Index is a widely used measure of the bank loan market. | 2Estimated default rate calculation based on current market pricing. Assumptions: Any defaulting loan will have a recovery of 60 and performing loans will return to a price of 95. | 3 Source: Moody’s US loan default rate, November 2009.


Jeremy Forster

Fed unleashes stimulus to combat economic hit
Jeremy Forster, Fixed Income Portfolio Manager
Boston

Published: 17 March 2020

Over the weekend, the US Federal Reserve (Fed) took a series of extraordinary measures to support the economy and help ease financial conditions in the wake of the coronavirus pandemic. Specifically, the central bank took the following actions:

  • A 100-basis-point cut in the fed funds rate to a range of 0% – 0.25%
  • Quantitative easing from US$700 billion purchases of US Treasuries and agency mortgage-backed securities (MBS)
  • Coordinated foreign-exchange swap lines with other central banks
  • Improved discount-window borrowing terms
  • Regulatory relief, including scrapping reserve requirements and inserting capital and liquidity buffers to support lending
  • Forward guidance that rates will remain low until the Federal Open Market Committee (FOMC) is “confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

Some have speculated that the Fed could take policy rates into negative territory as other central banks have done, but in his post-meeting press conference, Fed Chair Jerome Powell pushed back on that notion. We believe further easing will come from the bank’s commitment to keep rates low for even longer, increased asset purchases (potentially establishing a yield-curve control framework), and possible new funding programs and vehicles, including for commercial paper. The Fed is doing all it can, and while its measures should help the economy, the impact from the coronavirus will be profound; we do not expect monetary policy to have the same multiplier effects that it normally does.

Fears about the virus will persist, weighing on consumer confidence. However, low interest rates and low energy prices may help consumers move past their fears and shift from saving more to spending more. We expect to see pent-up demand for many activities and experiences that are nearly impossible to do today (with good reason). And although the unemployment rate is likely to rise in the near term, the longer-term income shock could be mitigated by Congressional actions. At present, proposed fiscal-relief measures appear to include extending unemployment benefits, mandating paid sick leave, expanding Medicaid health services, and providing additional help for hourly workers, potentially via direct cash payments.

We firmly believe that, like other crises, the economic distress caused by the coronavirus will eventually abate, and markets will look forward to better data. As the US and the rest of the world come out the other side, we could see a relatively robust rebound in growth as inventories are replenished and more people are able to return to work.


Haluk Soykan

The burden-sharing problem and the rate outlook
Haluk Soykan, Portfolio Manager, Global fixed income
London

Published: 5 March 2020

I am concerned that no government, not even China, has the technical expertise to think about the solution to the burden-sharing problem for this crisis. In crisis speak, “the fire chief” is currently missing. So somebody will need to step up to help determine a coordinated response to who pays for this crisis. Does the government pay? How much? Who in the government makes these decisions?

The longer the government response takes, the greater the probability of a confidence collapse in the system. Furthermore, the government response will require a lot of 0% loans to the constituents who bear losses. So, I believe world interest rates will go to zero and there will be some fiscal financing.


Chris Jones

Is high yield oversold?
Chris Jones, Portfolio Manager, High yield
Boston

Published: 5 March 2020

The sectors that have been hit the hardest in high yield are those you’d expect: energy, leisure, metals & mining, and autos, among others. Overall, I think high yield has probably moved too far too quickly, particularly if we have some stimulus coming. So, I’ve been taking some risk up in some of these areas by taking hedges off and reducing cash a bit.

That said, I’m very cognizant of the fact that if this virus does spread more in developed markets, we could see spreads go significantly wider. So I’m trying to be very tactical. We’re not yet seeing defaults pick up, but if we go to a recession scenario because of the virus, that will obviously have impact on companies with leveraged balance sheets, which would drive a default increase.

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Global Industry views

Brian Barbetta

Technology: The future is on sale
Brian Barbetta, Global Industry Analyst
Boston

Published: 17 March 2020

In recent comments, my colleague David Lundgren, director of Technical Analysis, challenges the notion – proliferated of late by TV talking heads and social media feeds – that the stock market swoons over the past couple weeks have created a “can’t-miss” buying opportunity that equity investors should seize upon now (or soon), before it’s too late.

To be clear, David believes (and I agree) that the recent market selloff has created an attractive buying opportunity for long-term investors as markets recover when the coronavirus crisis subsides, although we are clearly not there yet.

However, he also astutely calls out the technology sector as a notable outperformer – a bright spot amidst all the market gloom – that looks likely to sustain its recent outperformance as consumers and businesses continue to leverage technology in all its forms:

“I would be remiss to not highlight how well the tech sector has been performing since this crisis began. This is impressive and warrants a continued overweight, in my judgment, unlike all other cyclical areas.”

As a technology analyst, I’d like to build on that last point. I too expect the sector’s recent outperformance to continue, driven largely by some key trends that all appear to be accelerating along curves that were already pointing upward, including:

  • Streaming consumption replacing linear TV
  • Digital advertising replacing linear models
  • E-commerce replacing brick-and-mortar retail
  • Digital goods consumption replacing physical (e.g., video games)
  • Cloud collaboration tools replacing face-to-face interaction
  • Online education replacing the traditional classroom
  • Direct-to-consumer replacing legacy supply chain/middlemen

A number of stocks with exposure to these and other trends have sold off indiscriminately with the broader market, and are now trading at what I consider attractive relative and absolute valuations. Accordingly, I believe this is an opportune time to initiate longer-term investments in select tech names (or to add to existing holdings).

Like David, I don’t expect to be able to perfectly call the market bottom, but look at it this way: Hypothetically speaking, if the markets were to close tomorrow and then reopen once the worst of the crisis was over, what would you want to own? The future is on sale, and I think investors should be buying.


David Chang

Oil: From short-term demand concerns to structural supply disaster
David Chang, CFA, Commodities Portfolio Manager
Boston

Published: 9 March 2020

There’s no two ways about it; the OPEC meeting on March 6 was a disaster that could end the Vienna Agreement, reverse the market-balancing efforts of OPEC+ since 2017, and lead to an all-out price war. Amid the shock caused by the coronavirus, oil demand is currently contracting at its fastest pace since 2008. Demand was originally expected to grow by one million barrels per day (bpd) in 2020. Now, we think demand growth could be negative for the year.

What happened?
Prior to the meeting, the Saudis suggested further cutting production to shore up the price of oil in response to the recent coronavirus shock. Russia refused to cut, as this would cede market share to US shale. The Saudis, as in 1986 and 2014, decided they would not go it alone, so no cut was announced. Over the weekend, Saudi Arabia sought to demonstrate its resolve, lowering its official selling price (OSP) by US$8/barrel, the largest reduction in over 20 years. This decision will affect approximately 14 million bpd of exports that compete with exports from Asia, Europe, and the US. As a result, while the market had widely anticipated production cuts of one to 1.5 million bpd by OPEC+, we now could see additional surpluses, driven by a protracted price war.

Potential market fallout
Amid potential production increases from OPEC and Russia, it is important to remember that this is the most oversupplied market of the last two decades, given long-planned production increases from offshore fields in Guyana, Brazil, and Norway, coupled with the recent virus-related demand collapse. While Saudi Arabia is likely to boost production from 9.7 to 10 or 11 million bpd, most other OPEC members are already effectively producing at capacity. The market is in no condition to absorb another million-plus bpd. This move is effectively the Saudis saying that they are unwilling to support the market on their own.

What about US shale?
While US shale production could materially decelerate under US$40 West Texas Intermediate (WTI) crude prices, it would take six to 12 months for the lower rig-account activity to flow through to lower production. In this environment, for prices to stabilize, lower production is required immediately, meaning the oil price will have to fall to cash costs before producers are encouraged to shut in their wells.

Additional concerns and risks

  • The global economy. Does this raise the probability of a recession? Low oil prices clearly benefit the consumer. However, below a certain threshold (I’ve generally assumed around US$40), low oil prices can disproportionately negatively affect the global economy in a much broader sense. Low oil prices stress export and fiscal revenues among several emerging markets and further pressure fragile US industrial activity.
  • US energy (production, equities, and credit). In contrast to 2014 to 2016, US producers have less latitude to reduce costs and enjoy more limited access to capital markets. Meanwhile, this disruption is happening when financial markets are already roiling.
  • Currencies. With a floating ruble, Russia is in a much better position than Saudi Arabia to absorb a price shock. Will Saudi Arabia address this situation through a devaluation or floating of the riyal?
  • Inflation expectations and quantitative easing. As this development potentially extends the duration of low oil prices, might we see even lower inflation breakevens, allowing for additional central bank action?
  • High oil inventories and negative carry. Overproduction will translate into rising oil inventories and a steep contango in the futures curve. This will likely generate a negative roll yield that can invite further systematic selling of oil and extend the price slide.

If there is a tiny silver lining, in the longer term, this decision has the potential to rebalance the oil market by accelerating a slowdown in non-OPEC production, from the US and the rest of the world. OPEC’s restraint since 2017 has allowed non-OPEC production to grow and capture incremental gains in global demand. While we may see this trend reverse, it could be a long process. The focus for now will be on the more immediate consequences of Friday’s debacle in Vienna.

For more of David’s thoughts, click here for a replay of David’s March 11 webcast, or click here for the webcast’s highlights.


Evan Hornbuckle

US consumer “recession” ahead?
Evan Hornbuckle, Global Industry Analyst
Boston

Published: 9 March 2020

While the US consumer entered 2020 on firm footing, based on what I know today I do think it’s probable that confidence gets hit hard enough to drive at least a few months (and maybe 6+ months) of discretionary spending declines. In such a fast-changing environment, this is clearly impossible to prove today, though we have seen deceleration in the most recent week of our consumer credit card panel data.

Importantly, a large minority of US consumer spending stems from the wealthiest 10% of households. Consumer confidence and household net worth (which correlates highly to equity markets) are big drivers of spending for this cohort, and both are taking heavy enough punches now to suggest overall consumer-spending declines. Depending on how broadly the virus spreads (my base case is a broad outbreak), US jobs could also eventually take a hit, which would disproportionately hurt the lower-income cohort, whose savings rate is perpetually at ~0%. It’s possible the Fed pulls more rabbits out of its hats to counter these pressures, but I’m skeptical; conversely, we could see fiscal measures like payroll tax cuts, which could be a bigger spark to spending.

Sectors that could be hit hardest include cruise lines, airlines, hotels & casinos, restaurants, and malls, among others. Sectors that could be most immune include home & personal care (HPC), food & beverages, beauty, housing, and e-commerce, among others. Some stocks in the “hit hardest” category have already gotten hammered 20% – 40% so I’m not suggesting there are no good stocks in that bucket, even if fundamentals are about to roll over. In fact, I don’t find the above delineation (“hit hard” vs. “most immune”) overly helpful for forward-looking stock picking because I’m focused as much on assessing what’s already embedded in the stocks as who has the highest/lowest EPS risk. I’m also cognizant that the market will eventually look through the virus-related disruption (likely well before the virus disappears), and I think the consumer rebound could be sharp if a cure is found quickly. So overall I have adopted a conservative mentality, but I am still looking for opportunities to play offense where the market is over-/under-shooting.


Anita Killian

Asia tech as the “canary in the coal mine”
Anita Killian, CFA, Global Industry Analyst
Tokyo

Published: 9 March 2020

The coronavirus turmoil is just another in a long string of challenges faced by the Asia tech sector over the past two decades. First up was the Asian financial crisis, followed by the bursting of the tech bubble, the SARS scare, the global financial crisis, the Thailand floods, the Japanese earthquake, the US-China trade war, and now COVID-19. I think it’s fair to say that Asia tech companies have grown quite resilient in the face of hardship. I call them the “Navy Seals” of the global economy.

I see no reason why the current crisis should be much different from past episodes. Asia tech stocks may have led the way into the storm, but if history is any guide, they (especially the hardware stocks) may also lead the way out of it. This is because technology is so pervasive in the global economy that it has become nearly 100% coincident with what is happening in real time. Asia tech can be thought of as the “canary in the coal mine,” so to speak, meaning it may be a good place to be positioned for an eventual recovery.

I would not necessarily rule out a second-half rebound in sector fundamentals. I believe the situation on the ground is much better than might be expected:

  • Demand actually appears to be pretty strong or at least “delayed strong,” meaning the intentions are there, even if not fully acted upon yet.
  • Many factories are nearly fully back in operation as of this writing, while utilization rates are high and inventories low.
  • Prices for many products have been going up and should rise again in April when new second-quarter contracts are signed.

I believe this relative strength and optimism is being driven by trends and forces I highlighted earlier in the year: 5G equipment and handset demand, inventory restocking, memory market recovery, China localization, Chinese semiconductor development, and migrating supply chains. The only area that looks dubious to me is the auto market, but that could change dramatically if China stimulus comes through. My bottom line: I think COVID-19 is having a sharp, but likely a fairly short-lived, impact on business in Asia “tech land.”


Bill Ogrodnick

The transportation sector and the supply-chain challenge
Bill Ogrodnick, Global Industry Analyst
Boston

Published: 5 March 2020

The transportation universe I cover is at the focal point of coronavirus current events. Most transportation companies are contemplating two possible scenarios. One possibility is a V-shaped recovery, where the inventory drawdowns due to disrupted supply chains reverse, leading to a surge in demand for transportation services. Under this scenario, transportation stocks are attractive. The second scenario is more bearish. It involves contagion outside of Asia, which appears to be the case right now. This would have a negative follow-on impact on the global economy and could lead to a longer-term economic depression.

The year started off strong for the transport sector. It was already at a low point in its cycle, and we were beginning to see green shoots in the form of improving fundamentals. Now companies are reporting that February was weaker than January. Retail inventory levels are declining. This sets up for a possible inventory replenishment cycle later in the year.


John Averill

A bullish signal for tech?
John Averill, CFA, Global Industry Analyst
Boston

Published: 5 March 2020

At the end of February, software was down 13%, semis were down 15%, and internet was down 12%. The S&P was down 12%. Ignoring for the moment the cause of the sell-off, when correlations get this high, it is usually a pretty bullish signal for tech stocks. Whether this even matters right now is open for debate. It does give me some comfort, however, that 1) there seems little value added by moving around within tech at this point, and 2) if there ever is any relief from the virus concerns, tech is a tightly coiled spring right now.

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Equity views

Wency Cromwell

NEW The world is watching
Wendy Cromwell, CFA, Vice Chair, Director of Sustainable Investing, and Portfolio Manager
Boston

Published: 30 March 2020

During this period of unprecedented upheaval and disruption, some companies will rise to the challenge of the moment, while others will not. In many cases, their most enduring actions — and the ones that help them survive — will include ESG decisions as well as financial ones. How are companies ensuring employees’ safety? What benefits are they providing? How are they treating customers and communities? Are they evaluating the resilience of their supply chains?

During our engagement calls with executives and boards, we are asking questions like these to understand how each company is responding to the COVID-19 crisis and considering all its stakeholders. I’ve included a few of our investors’ insights here.

Carolina San Martin, CFA
Director of ESG Research

On a recent energy-company call, it was clear that the board and management have increased their focus on employees in light of the COVID-19 crisis. While they didn’t rule out layoffs down the road, their first capex cuts this week did not include any reduction in force. They plan no change in their commitment to their energy-transition strategy. In fact, management believes this crisis may accelerate action on climate change, because it has given the world a stark picture of what massive economic and societal disruption looks like. They cited a strong culture of collaboration among the board and management teams, who say functioning as a team is paying off during this crisis.

Michael Shavel, CFA
ESG Research Analyst

I think times of crisis help investors get a better sense of whether companies do what they say they do. It’s easy to publish a shiny sustainability report that highlights how employees are key assets, suppliers are partners, and customers are the lifeblood of the business. But during tough times, we get to see how boards and management view and prioritize various stakeholders. There’s no one right way to go about it, but we should at least be looking for consistency between the message we’ve been hearing and the actions being taken. A lack of consistency might suggest that we apply more skepticism to other elements of the business narrative.

Mark Whitaker, CFA
Equity Portfolio Manager

Will companies pay employees during the shutdown? How are companies prioritizing the safety of their workforce? My recollection is that after September 11, 2001, and during the global financial crisis, layoffs were broad and cold. While the subject of layoffs is always painful, I am heartened that thus far — this time, and in a small way — it feels different. When this period is over, will we be able to point to real differences? Will the view of certain corporate cultures be enhanced? I’ll be interested to see.

Prachi Shah, CFA
Global Industry Analyst

The key difference between my flow-through assumptions last week and what the company provided today, is that they will be paying some inactive labor. I think we can apply this assumption to other similar businesses. It is the right thing to do for society, and it will probably set a precedent.

Jessica Fry
Business Associate

We should keep thinking about how all companies in the portfolio interact with customers. This could be a differentiator, depending on consumers’ reaction. Many airlines and hotels are offering refunds for customers not wanting to travel. Grocery store chains are making it easier on shoppers with “elderly hours.” I think the effects on corporate culture and customer relationships are going to last a lot longer than the market impact.

Mark Mandel, CFA
Equity Portfolio Manager

One of the world's largest home-improvement retailers announced it is temporarily adjusting store hours to better serve customers and communities in response to COVID-19. The company understands that this action is essential to the communities it serves, and says it is committed to keeping stores open during times of crisis and natural disaster.

Eunhak Bae
Global Industry Analyst

On a call last night, the CEO highlighted various employee and community actions the company was undertaking. I thought it was a strong statement of its commitment to be a good corporate citizen and of confidence in its financial health. The actions included bonuses for lower-level employees, emergency-fund relief for employees facing financial hardship, supply-chain support for protective equipment, and help for small business vendors with liquidity issues. I plan to give management positive feedback when we speak to them next week.


Mark Mandel

NEW Saints and sinners
Mark Mandel, CFA, Equity Portfolio Manager
Boston

Published: 25 March 2020

This crisis represents a seminal moment for responsible investing. To this juncture, many portfolio managers have understandably struggled to incorporate environmental, social, and governance (ESG) into their investing frameworks. ESG can feel steps removed from buy/sell decisions and seem arbitrary, as though conclusions are reached by applying personal values.

I see this changing right now. Starting with Wellington’s recent virtual Consumer Conference, and continuing over the past couple of weeks, we have had hundreds of touch points with company management teams. Those conversations have broached topics affecting a wide range of stakeholders:

  • Is management working from home?
  • Who is coming into your offices/stores/warehouses/factories?
  • How are you dealing with employees?
  • How are you accommodating customers?
  • Are you building supply-chain resilience?
  • What’s happening in your local communities?

These discussions have felt natural, because they are very relevant to long-term shareholder value. Stakeholders will remember companies’ actions during this crisis for a long time. The ability to hire, rehire, and retain talent will be shaped by reputations developed now. Brand loyalty may be gained, strengthened, or lost based on how customers are treated. And so on. If an investor is asking questions like these today and considering the inputs when making investment decisions, then ESG is part of their framework.

For better and for worse, the media is becoming more focused on corporate behavior. The Financial Times has added a “Saints and Sinners” section to its Moral Money newsletter, this week lauding a few producers of emergency health care supplies and criticizing a few online retailers, pharmaceuticals, and even professional sports teams.

Our colleague John Averill asked in Morning Meeting yesterday about best practices for treating employees during this crisis. I have learned that the answers are very case-specific. Some companies that have financial flexibility and benefit from strong current business trends can go a long way to help. Technology companies and grocery chains are two that come to mind. Some companies may want to do the right thing but are less flexible, hamstrung by the size of their workforce and the realities of the current environment. Hotel chains or food service companies are recent examples. Even companies that seem best-positioned to weather this storm may have to grapple with important employee welfare issues, including childcare, heightened stress levels, and, of course, illness.

In his recent book, Skin in the Game, author Nassim Taleb talks about via negative; essentially, we know what is wrong with more clarity than we know what is right. I find this to be especially true about company actions today, and about ESG in general.

In sum, there is no one “right” approach for companies to take. Each must consider a matrix of options and stakeholders, including employees, customers, and shareholders. And their choices are constrained by their specific financial reality. Investors need to apply judgment, just as with traditional fundamental analysis: Is a company doing a good job reaching balanced decisions, given the multidimensional issues it faces? Are management’s choices consistent with its culture and strategy? Are these behaviors consistent with the reasons why you own the stock, and with your time horizon for investing?


Michael Carmen

We’re all in this together
Michael Carmen, CFA, Co-head, Private Investments
Boston

Published: 23 March 2020

Wellington’s investor community is collaborative and supportive, characteristics that shine in times of crisis. We come together to support one another, share information and insights, and ensure that we continue to make the best possible decisions for our clients. Michael Carmen, one of Wellington’s senior investors, sent a note out to his colleagues recently. His comments follow.

I thought I would put a few thoughts out there, as we once again navigate a difficult market environment.

  1. During periods of extreme volatility, mistakes are inevitable. Right now, it may seem like every transaction we made before the market declined looks bad and every upgrade we’ve made since hasn’t worked out. Don’t look in the rearview mirror; the information is changing fast. Just focus on trying to make the right decision for your clients every single day.
  2. Maybe another way to say this is, don’t let a bear market (or a recession) go to waste. Make sure your portfolio is positioned to hum on the other side of this. An old mentor of mine once said, “You might need to underperform in the near term in order to outperform in the long term.” Remember, while some of these prices will probably look amazing two years from now, they could still look horrible next week.
  3. Stay true to your investment philosophy because it will ultimately serve you well. The worst mistake I made during the global financial crisis was getting more conservative at the beginning of 2009. It was a bad decision and led to a period of disappointing performance.
  4. Stick to your guns, but always be flexible as new data arrives. A flexible mind is a sign of strength, not weakness. Don’t be afraid to adjust your “philosophy and process” if you believe there are ways to make it stronger. After that period of poor performance in 2009, we added our Up/Down valuation framework, and we have never looked back. Time and again, it has been super helpful in giving us a much better quantitative view of the downside if a thesis didn’t play out.
  5. As our colleague Mark Whitaker likes to say, “Stocks can always go lower.” In 2009, the poster child was Las Vegas Sands, which dropped 99% from its high. Don’t anchor yourself into a specific price. The old adage that the market can remain irrational longer than you can remain liquid is true.
  6. For younger investors (maybe old ones too), don’t be shy about reaching out to us veterans. We’ve been through this and can provide perspective. Ask us anything: Would you upgrade this stock? Would you sell here? How is this different or like the time when…? We are here to help, and we want to help. I’m happy to do a video call with anyone who is interested. Plus, as an extrovert stuck at home, I crave interaction!
  7. Sleep! I know it is very stressful and I’m sure everyone has lay awake in bed at 2:30AM, wondering what could possibly be coming at us next. I know I have. But none of us can make good decisions for our clients if we are sleep deprived. And we don’t have to commute to work right now, so we have all that time back. In our tenet “client, firm, self,” self might be last, but it’s still a priority. Take care of yourself.

In my 21 years at Wellington, even in the depths of these bear markets, I have always wanted to come to work because I knew I was sharing the experience with my colleagues. We are all in this together. I’ve now experienced three horrible, stressful, life-changing periods in the markets. It is awful. No one likes to lose money. No one wants to underperform their benchmark. But as another veteran investor, retired portfolio manager Ed Owens, once said, “Betting against the survival of the universe has been a bad gamble for millions of years.”


Gregg Thomas

Factor insights: A drawdown comparison to the GFC
Gregg Thomas, CFA, Director of Investment Strategy
Boston

Published: 16 March 2020

I have heard many comparisons between the current crisis and the global financial crisis (GFC). To me, this shock feels similar in terms of uncertainty, but somewhat different from a factor perspective. We compared the first two months of the GFC and the four weeks ended March 13; these two periods equated to about a -25% market decline. Several high-level observations stood out:

  1. Key takeaway: The worst-performing factor was clearly solvency risk, followed by value. We think the market has been engaging most on companies that might not pass the “going concern” test in the face of the first real growth shock we’ve seen since the GFC, and that these companies are seeing a massive increase to their discount rates. Our definition of solvency looks at the relative distance to a default (similar to the model used by credit-rating agencies), identifying distress at the individual company level by considering the interaction between capital structure and stock-price volatility. For capital structure, we look at leverage on the balance sheet and add back fixed-cost structures such as lease obligations, pensions, etc.
  2. This isn’t just a reaction to leverage. Looking across our factor returns, there is a direct correlation between a factor’s exposure to solvency risk and excess return. Leverage is much less explanatory. Overall, the market is pricing high solvency risk nearly three times more than high leverage.
  3. Unlike the first hit of the GFC (September and October of 2008), this time around there is not as much on the other side from a style perspective to cushion the blow (e.g., low volatility and profit stability factors are ahead, but not by much).
  4. Up to now, the weakness in value factors has far outstripped the gains in defensive and quality factors. During the GFC, this was more balanced.
  5. Dividend yield has not protected like it did in 2008, largely because the highest yielders are in energy and financials, which have higher exposure to solvency risk.

Given continued high uncertainty, we are being thoughtful about factor exposures, solvency risk, and stock-specific risk, and when in doubt, we are taking the defensive side.


David Lundgren

Preparing for even more volatility
David Lundgren, CMT, CFA, Director of Technical Analysis
Boston

Published: 16 March 2020

Other than direction, what distinguishes uptrends from downtrends is their different return and volatility profiles. Uptrends are the result of investors’ steady confidence in their market outlook, which is constantly reinforced as the market marches higher. This momentum feeds on itself, emboldening investors to buy every dip. As a result, uptrends provide strong returns and low volatility, producing a very attractive Sharpe ratio.

Downtrends are quite the opposite. Uncertainty about the market outlook materially undermines investor confidence, flipping the behavior from buying dips to selling rallies. From time to time during downtrends, we get multi-standard-deviation rallies. These are often headline-induced gyrations that ultimately fail, repeatedly dashing the hopes of investors. Eventually, a new sort of confidence returns to the market, where investors are “confident” that the world is going to end so they proceed to sell everything, regardless of price. Then we bottom. This combination of progressively lower prices and extreme intermittent volatility results in a very unattractive Sharpe ratio.

The current downtrend is no different, and investors need to prepare for an even more volatile period. In the autumn/winter of 2008/2009, after September’s 20% decline from all-time market highs was already on the books, multi-standard-deviation rallies of 5% – 10% became “normal.” Each one was driven by hope, triggered by some unprecedented government intervention or exciting headline. In all cases, my personal bottom-identifying checklist of trend change never indicated an actual change. In other words, the trend remained down despite these voracious rallies. Worse, the ensuing percentage decline to ultimate crisis lows was still at least another full bear market, or -20%, away.

This is not a forecast, and I’m not suggesting we doubt every rally, but until the trend shifts from down to up, there is little reason to chase hope-fueled upticks that run the risk of failing.

In 2008, we referred to the investor fear that spread through markets as “contagion.” Today, in addition to the actual contagion of the coronavirus itself, we are dealing with investor contagion that is responding to policy contagion. As leaders try to stem the spread of this virus by canceling events, closing attractions, and declaring states of emergency, the pressure increases on private-sector leaders to respond similarly or risk indictment, in hindsight, for doing nothing. We are hearing questions like, “Is it too soon to buy?” and “Is it too late to sell?” Both queries share a tinge of hope that the lows are in. Both are essentially asking “Are we going lower?,” implying that the panic button has yet to be hit. If consensus was that the market had farther to fall, these questions would be different. People would be asking, “How much cash should I withdraw?,” “How safe is my money market?,” or “Which should I stock up on, soup or beans?”

I do not have the answers, but that is mostly because, as a trend follower, I don’t ask many questions. Trend following is about identifying what is happening and doing that until it is no longer happening — without making forecasts as to when conditions might change. It’s not perfect. One criticism we often get is that trend-following strategies only do well over the long term because of “crisis alpha,” meaning they protect capital when things really go bad. Guilty as charged. If compounding is about digging small holes during downtrends and fully participating during uptrends, then I believe trend-following potentially offers a solid, repeatable approach. In the current environment, digging small holes is paramount until better market conditions return.


Vera Trojan

Thoughts on a complicated crisis
Vera Trojan, CFA, Portfolio Manager
Boston

Published: 12 March 2020

As a longtime emerging markets investor, I have faced more than one major crisis. The current environment, however, strikes me as more complex than any I have seen.

It is developing as an interplay between a health crisis, a further unraveling of the post-World War II geopolitical order, uncertainty caused by climate change, a potential financial crisis, and a fundamental rethinking of the role of business and the investment industry in society.

As I think about all these factors, crisis investing 101 is an obvious place to start:

  • Be wary of illiquidity and debt.
  • Take advantage of opportunities to upgrade your portfolio.
  • Avoid banks and other leveraged financials.
  • Be prepared for extreme volatility.
  • Take shelter in stable businesses with solid balance sheets in economically and politically stable countries.

The other framework I am using is time horizon: What will be the shortest- and longest-lived aspects of the challenges currently upon us? Arguably, the coronavirus itself will be the first to pass, with consumer fear abating. Quality names in the most impacted sectors, such as travel and entertainment, may be the first to recover. Longer term, a financial crisis is a real risk, given the leverage, volatility, and illiquidity already in the system. Banks, which will be at the center of any storm, are already suffering due to record-low interest rates and slower growth. In my view, even the highest-quality banks will not be spared if a real crisis unfolds.

Geopolitical discord will also be with us until a new order emerges. The challenges of a multipolar world are myriad, and in my mind, the seeming unraveling of OPEC is a symptom. As it is difficult to imagine the players coming together again, it may be prudent to underweight oil. While most of Asia benefits from structurally lower oil prices, the stresses in the Middle East will become more acute and destabilizing.

As China and the US are the two pillars of a multipolar world, they also are likely to be key components of long-term investment strategies. China has been the first country to bring the coronavirus under control and its stock market has performed relatively well in a global context. Attractive ideas potentially include top internet players, consumer cyclicals, and service providers. Outside of China, we are looking for idiosyncratic structural growth businesses, such as certain research-driven pharmaceutical companies and various technology names.

Finally, we may find ourselves struggling to identify the floor in this severe market dislocation. In emerging markets, that has traditionally been marked when an outside player such as the US Treasury or the IMF steps in to restore confidence and liquidity. In developed markets, international cooperation will be required to restore order and confidence.


Greg Mattiko

Anchoring to absolute valuation
Greg Mattiko, CFA, Portfolio Manager, Emerging markets
Hong Kong

Published: 9 March 2020

Predicting the “then what” after an event like the coronavirus is notoriously difficult in my experience. I remember the market trying to guess the “then what” to the possibility (pre-outcome) of Brexit and the election of Trump in the US and Bolsonaro in Brazil. Not only did the market not anticipate that those events would happen, but the “then what” thinking that prevailed in the face of those unknowns turned out to be the opposite of the market outcome.

Does that mean we shouldn’t think about these things? Of course not. My approach is to imagine various outcomes but put very little probability weight on any one outcome. I then anchor back to the one thing I can observe: absolute valuation at the single-stock level. I think we’d all agree that prices move faster, and in a more exaggerated manner, than fundamentals. This is the basis for the existence of active management. And managers, of course, use many different valuation lenses. Mine is firmly focused on absolute, discounted cash-flow-based valuation. This is a lonely way to operate when the market seems to have dislocated from absolute valuations. In times of stress, however, looking at absolute valuation can be a useful anchor. In my experience, the combination of big price dislocations and an absolute-valuation framework can potentially lead to significant opportunities.

How much one adjusts one’s discount rates is a key question right now. I am certainly increasing mine, as uncertainty is on the rise. The fragility of the financial system in the face of recession is one example of a fat-tail uncertainty on my mind. My valuation work suggests that the prices of many emerging market stocks have not yet digested this possibility.


Niraj Bhagwat

No “memo” announcing the crisis is over
Niraj Bhagwat, Portfolio Manager, Asia-Pac equity
Singapore

Published: 5 March 2020

The prospect of government support for the economy can help investor sentiment, but room for policy responses to today’s crisis is nowhere near what it was in 2008 – 2009, in both China and elsewhere. However, such a response is not necessary for asset prices to go up, including equity markets in Asia, partly because the cost of capital is low and there is ample money in the system that is not going toward productive capital capacity. It is important to note that certain industries and companies in Asia, especially those that are fundamentally sound, can do well regardless of policy support for the global economy. In fact, many have done so over the past five years even when their country’s GDP growth has come in disappointing.

For my part, I haven’t made any meaningful changes to my portfolios since this crisis erupted, but instead am using this opportunity to add to certain holdings at the margin. Specific areas of opportunity may include the education industry in China — in particular, online education, which has experienced growth amid this crisis due to fears of being exposed to the virus. That growth may be sustainable going forward, in the same way the SARS scare helped fuel a trend of more people working from home that then kept gaining traction. Even sectors and industries more in the “eye of the storm,” so to speak — for example, travel/tourism in China — may offer select opportunities at good prices now. Smaller Asian markets like Indonesia have a narrower range of opportunities, but they still exist for discerning investors.

The bottom line for me is that, as a stock picker, I’m very focused on evaluating stocks and companies on a business-by-business basis even when there is a crisis like this. There won’t be a “memo” announcing when this one is officially over, so making major investment decisions based on trying to “time” the end of the outbreak is ill-advised, in my view.


Don Kilbride

Raking leaves in the wind
Don Kilbride, Portfolio Manager, Dividends
Boston

Published: 5 March 2020

A few thoughts:

  • The current environment feels a bit like raking leaves in the wind. It seems like a doable task when you are inside looking out the window. But it isn’t. Either your portfolio was set up for this or not. If it was, you were (on some level) lucky. And that’s ok.
  • The head of our trading group made an important point. It’s very expensive to transact right now. And it’s very hard to know what levers to pull. So why spend more when you know less?
  • We get really distracted in moments like this. For example, did anyone else know Jack Welch died or North Korea fired ballistic missiles into the sea? The impact on markets of those events will be low, but still the world goes on.
  • Finally, is this healthy for markets? At a recent client meeting, I made the point (a little off script) that moments like this can be healthy. The market needs to be reminded that risk isn’t free after all. Discount rates can’t be zero. It’s a risky world growing ever more risky. Markets ought not shrug off every risky moment. To be clear, this is not something we should have wished for, as it comes with great personal and societal cost. But we solve this… more quickly and efficiently than seems possible at the moment. That said, as investors, I think waiting for the wind to die down a bit is a good plan.

Phil Ruedi

Applying past lessons learned
Phil Ruedi, CFA, Portfolio Manager, Mid-caps
Boston

Published: 5 March 2020

A few broad comments I would share:

  • When you run into situations like this, continue to focus on what you’re supposed to do for your clients. If your clients pay you to take risk, then take risk. If they pay you not to take risk, then don’t take risk.
  • Limit the number of decisions you make. Even very good investors are going to be wrong at times. This situation is very fluid, and so the more decisions you make, the greater the potential for mistakes.
  • Practice mindfulness. There’s a lot of information to sort through. Your subconscious and your conscious are working through that information. Try to listen to both.
  • Don’t be complacent. If you’ve outperformed the past few weeks, it doesn’t mean you’ll outperform the next few weeks. If you have underperformed, don’t get down on yourself. Periods of underperformance are to be expected during volatile markets.
  • Don’t follow someone else’s path. Take the information available and decide where your conviction is. Then develop a plan and follow it.
  • Don’t worry about next quarter or the quarter after. Think about what this means for the world two years from now. How will it affect people and the way they do things? Will remote computing be much more common? Will supply chains change dramatically?

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This commentary is provided for informational purposes only and should not be viewed as a current or past recommendation and is not intended to constitute investment advice or an offer to sell or the solicitation of an offer to purchase shares or other securities. Wellington assumes no duty to update any information in this material in the event that such information changes.

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