103 | Diversifying Bond Portfolios

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  • Nicolas Trindade, Senior Portfolio Manager, AXA Investment Managers

Learning outcomes:

  1. How changes in inflation and economic growth rates impact on bonds
  2. How the bond market is becoming increasingly international
  3. Techniques for preserving capital and making money when bond markets are falling


Learning outcomes: 1. How changes in inflation and economic growth rates impact on bonds 2. How the bond market is becoming increasingly international 3. Techniques for preserving capital and making money when bond markets are falling NICOLAS TRINDADE: I think since the financial crisis that erupted 10 years ago, I think there’s a consensus that we are in a lower for longer environment. And there’s a consensus in the market that it will be some time before we get back to yield levels that we saw 10 years ago. And that is because, you know, some problem policies, who have been basically doing quantitative easing and been pulling yields down over the last couple of years. PRESENTER: And do you see inflation, or does the conventional wisdom see inflation staying lower for longer as well? NICOLAS TRINDADE: Well I think right now there’s a change actually in sentiment around inflation and growth. I mean over the last couple of years, I mean it was definitely the lower for longer camp where inflation was really low, growth was really muted. But what we started to see since the back end of last year is definitely a pickup in growth and inflation globally. I mean if you look at the US first, I mean we definitely start to see a pickup in growth. And we expect growth, GDP growth in the US to be around 2.2% for 2017; up from 1.6% last year. So definitely a big pickup in growth, which should be driven by basically tax cuts for corporates and households, which hopefully should boost spending. And that also would lead to higher inflation because right now the US economy is quite close to full employment. That should lead to wage inflation and higher inflation. So definitely the picture is quite positive for the US. PRESENTER: And in terms of how bonds themselves are seen, are they still perceived very much as a safe haven asset? NICOLAS TRINDADE: I think they are still perceived as safe haven assets, but I think investors now understand much better the asset class than maybe 10 years ago, because not all bonds are equal, and not all bonds have the same risk. Maybe 10 years ago there was much less focus on duration. And I think right now duration is a much greater focus for investors. Because they understand that if yields rise, if you have a very long duration that will have a big impact on the performance of our fixed income fund. And I think there’s been much more focus on duration aspects, and making sure that you get the duration where you want it to be. PRESENTER: Duration is one part of it, but also things like high yield, I mean is high yield basically a government bond with higher yield? I mean that’s what’s sometimes used from the commentators. So you get a bit of an impression, so. NICOLAS TRINDADE: Well let’s put it this way, I wouldn’t look at it this way. But what is true is that basically the risk premier has definitely decreased over recent years. And if you look at the level of spreads on US or European high yield they’re much lower than where they were just a year ago for example. And that is part due again to central banks buying corporate bonds and pushing investors down the credit rating, the credit spectrum, to try to still get attractive yields. And we’ve seen really that trend of yields collapsing, because of central banks coming in the market and buying debt. But, you know, credit research is still very important. Bottom-up research is still very important, and you need to make sure that what you hold within high, you’re comfortable with whatever you hold in the high yield space, because there’s still credit risk there that you need to be in control of. PRESENTER: And this bull market in bonds that’s been going on for 30 years or so, how much longer can it continue for? NICOLAS TRINDADE: Well I mean from our perspective and from my perspective I do think that we’re starting to get to the end of this 30-year bull run. That is simply because we’re starting, as I said earlier we’re starting to see pickup in growth and inflation globally in the US as we discussed. But also in the eurozone, which is very positive, because we’ve finally started to see core inflation increasing in the eurozone. And we’ve also started to see a nice pickup in growth in the eurozone. If you look at the PMI numbers they are six-year high, so very clearly there’s been a pickup there. And that I think is positive, and that’s why I think with central banks also starting to tapering quantitate easing I think we’re in an environment where we should see higher growth, higher inflation and higher yields. PRESENTER: Is it the right sort of inflation, is this wage growth led inflation or this just prices going up? NICOLAS TRINDADE: Well let’s put it this way, in the US, it will be the right type of inflation, because we expect wage inflation to go up. In the UK, it may be the wrong type of inflation, because of the falling pound. What we’ve seen is actually imported inflation, which is the wrong type of inflation. That is the type of inflation that central bankers don’t want to see. PRESENTER: Now you mentioned this 30-year bond bull market could be coming to an end. If it comes to an end does that mean you lose money in bonds or are there ways of preserving capital and indeed making money? NICOLAS TRINDADE: It doesn’t necessarily mean that you lose money in fixed income. It depends how you are positioned within fixed income. Because if you are in an environment where yields rise, that means that actually economic activity is picking up. And so that means that credit spreads should tighten. So in this type of environment what you would like to be exposed, you would like to be invested in short duration credit assets, so short duration investment grade or short duration high yield in order to benefit from the credit spread tightening, but defend yourself against rising yields. PRESENTER: So a certain amount of economic growth, a certain amount of inflation can be good for bonds. NICOLAS TRINDADE: Yes, exactly, as long as you’re well positioned within your fixed income allocation. Because if for example you have very long duration, you will suffer from high yields. PRESENTER: But the yields on many bonds have got so low, it seems very hard to see how people can make money off bonds. Why have they been buying them? NICOLAS TRINDADE: Well because they’ve been pushed by central banks basically to buy bonds and go lower and lower in the credit spectrum. I mean the issue you have, again here in the UK we’re quite lucky because we don’t really have to deal with negative yields. But if you look at the eurozone investors there had to deal with negative yields on a daily basis, where a big part of the investible universe is actually negatively yielding. But investors have been buying really low yielding assets, because if you look at cash, cash is not giving you any returns. So if cash doesn’t give you any returns, then you need, you go basically to government bonds. If government bonds doesn’t give you any returns you go to investment grade credit and then you go to high yield. That’s what a lot of investors have done over recent years is go from one asset class to the other to try to hunt for yield so they get some kind of returns for their investment portfolio. PRESENTER: In the round, do you think there’s going to be more investors coming out of equities into bonds or coming out of bonds into equities given this backdrop that you’ve described? NICOLAS TRINDADE: I think I would see is if growth is picking up and inflation is picking up, we should see some investors reallocating to equities, because that is definitely a positive environment for equities. But I think also what we’ll see is investors looking more short duration fixed income and credit short duration fixed income assets. PRESENTER: And just a final background question around this, how much debt is there out there, and is it sustainable? NICOLAS TRINDADE: Well let’s put it this way, there is too much debt out there. And I think it is sustainable as long as yields don’t rise too quickly and too aggressively. And that is particularly the case for governments, and in particular the case for the periphery within the eurozone. If we see a gradual rise in yields that should be OK for governments. But if you start seeing a big pickup in yields some governments in the eurozone, particularly in the periphery, it could become more difficult for them to refinance, and that will definitely hit their budget. PRESENTER: Well we’ve been talking a lot about what some of the trends have been in developed bond markets, particularly government bond markets in the last decade. What are some of the trends that have been quietly bubbling away under the surface elsewhere in bonds? NICOLAS TRINDADE: I mean what has been interesting, for example if you look at the European corporate bond market, is that we’ve seen a lot of reverse Yankees. So what we saw is a lot of US issuers issuing in euros or in sterling, but mostly in euros. Historically what we saw is a lot of European issuers issuing in dollars that we’ve seen, so Yankee bonds. But then we’ve started to see a lot of reverse Yankee issuance since last year. That has been quite interesting, and obviously has changed the core position of the European corporate bond market because of so much more US issuers coming and issuing in eurozone particularly. PRESENTER: Why are they doing that? NICOLAS TRINDADE: Because it’s cheaper for them to issue in euros, because if you look at the overall level of yields they’re much lower in euros than they are in dollars, and even when you take into account the cost of hedging, it’s still cheaper to issue and fund yourself in euros than it would be in dollars. So that’s why a lot of US issuers have decided to come to the euro market and issue there. But then it’s been also the case for some sterling issuers. I mean we saw some domestic sterling issuers issuing in euros instead of sterling, very household names, and that is simply because funding costs are quite attractive in euros, and also because the investor base in euros is so much bigger than what you have in sterling – that is quite attractive. PRESENTER: And as the emerging markets and Asian economies develop, are their governments, are their corporates issuing in euros too, or are they issuing in their own currency, what are they doing? NICOLAS TRINDADE: Yes, I mean what we’ve seen is definitely a pickup in terms of issuance from emerging market economies. We still have a lot of issuance in the hard currency bonds. We’ve also seen a pickup in issuance in local currency bonds, which obviously is a big positive for governments or corporates, because they match better the assets with their liabilities. And that also has been a trend that we’ve saw over the last couple of years. PRESENTER: And for yourself as a fixed income manager, are you spending more time thinking about this paper and this issuance that’s coming from Asia, Latin America, than perhaps you did 10 years ago? NICOLAS TRINDADE: Yes, definitely, because the emerging markets, well, it’s a much bigger proportion of the global universe, and so you need to look at this universe, and assess if there is value or not to look at this universe and buy some of those issuers. And there’s actually one part of the market where AXA IM we’ve been increasing our resources, because EM is becoming bigger and bigger, and you need to make sure that you have the resources to cover this part of the universe. PRESENTER: And how big a part to the universe these days are things like floating rate notes? We’re hearing more and more about some of these alternative fixed income, how alternative is it? NICOLAS TRINDADE: Yes, I mean that’s a very fair point. I mean what we’ve seen over the last couple of years again is an increased issuance in floating rate notes. I mean usually what I would tend to say is that issuance comes into demand. And because there’s an expectation from investors of higher yields there’s been more and more issuance of floating rate notes, because obviously in a rising environment floating rate notes are very efficient because they have no duration. And so we’ve seen a lot of issuance of floaters in dollars but also in euros. And also more and more issuance of corporate floaters, because historically floaters have been more focused on the financial side. But we’ve started to see more and corporates issuing floaters. PRESENTER: And do they have a typical length of life, a floating rate note? Do people want to say we’ll pay whatever the interest rate is for the next 20 years, do they try and keep these shorter duration? NICOLAS TRINDADE: Usually floating rate notes will be issued up to five years. So they will tend to be fairly short duration, I mean fairly short maturity let’s put it this way, short maturity yes. PRESENTER: Now if you are starting to look more internationally for your bond exposure, and you’ve been talking about companies certainly looking much more internationally to issue, what are some of the opportunities and threats that that throws up? NICOLAS TRINDADE: Well I think if you are a UK or European investor, I think going global is quite attractive for three main reasons. Firstly from a yield enhancement perspective, because going global gives you access to different markets with some higher yielding sectors. Secondly when you go global you can benefit from better diversification. You know, there’s some sectors that are underrepresented in sterling and in euros that you could potentially have access in dollars or in emerging markets. And lastly also you can benefit from cross currency quality value opportunities. I mean we’ve just discussed that some issuers issue globally in different currencies. And sometimes we don’t necessarily trade in line. And so a bond from one particular issuer can be cheaper in dollars versus euros, or cheaper in sterling versus dollars for example, and that’s also the interest of going global is that basically you can buy the issuer in its cheapest currency. PRESENTER: Well let’s pick up on those three points. You mentioned yield, how much of a yield pickup can you get? And let’s assume it’s a similar level of risk that you’re taking to get this extra yield. NICOLAS TRINDADE: I mean yield pickups could be quite attractive. It could be a couple of percentage points according to how much aggressive you are in terms of credit quality, but also global aspect. Because it depends, there’s different ways of looking at global. I mean you could just go from pure sterling investment grade or Euro investment grade to global investment grade mandate. In which case you’ll be able to pick up a bit in yield, but not as much as if you go global including high yield and emerging market for example. That will depend on the risk appetite of the investor. PRESENTER: And you mentioned better diversification, how diversified is it? I mean I thought ultimately everything comes back to what the price of treasuries is. NICOLAS TRINDADE: Yes, but when I talk about diversification it’s in terms of the composition of the different indices, because there are some sectors that doesn’t exist in some parts of the market. I mean if you look for example at the energy sector, it’s much more diversified in dollars than it is in euros or in sterling. If you look at financial subordinated debt, it’s a much bigger pot of the Euro market than it is of the dollar market or the sterling market. And if you look at the securities sector, that’s something that exists in sterling but doesn’t really exist in euros or in dollars. So again by going global you can really benefit from different names, different sectors that you wouldn’t have access normally if you were just investing in your domestic market. PRESENTER: And you mentioned as well currency. Talk us through how you manage currency. NICOLAS TRINDADE: Well I mean in our case I mean we hedge currency risk. So whenever we buy non-sterling bonds we will hedge it back into sterling. So that’s something that we hedge out in the portfolio, we don’t take particular views on currencies. Because one issue raises with currency is that if you take currency views in your portfolio that may become the overdriving factor, an overdriving driver of performance, and so that’s why in our case we will hedge the currency risk. But then something that is very important is that when you do cross currency relative value trading you need to take into account the cross-currency swaps. Because obviously there’s different, there’s a cost of going from one currency to the other, there’s the cost of hedging, that cost of hedging has to be taken into account when you go global. Because that otherwise can really eat into your returns and the yields that you’re getting. PRESENTER: Well you mentioned cross-currency relative value there, can you just give us a quick definition of what you mean by that? NICOLAS TRINDADE: Well for example let’s imagine that you’re looking at one particular issuer. For example there’s a Spanish utility company that issues globally dollars, euros, sterling. And if you look at the bonds with the same maturities in dollars and in euros, after hedging costs they are 90 basis points wider in dollars than they are in euros. So very clearly the case for investing in this Spanish utility in dollars instead of euros is very high, because you’re getting quite a big pick-up for exactly the same underlying credit risk. So that is the kind of work that we are doing, trying to pick the issuers in the cheapest currency. PRESENTER: You’re talking about investing around the world, but obviously the economic cycle isn’t in exactly the same place in every country in the world. What are the threats, what are the opportunities that throws up? NICOLAS TRINDADE: Well one thing that is true is that if you look at the world right now, I mean we can see that growth and inflation are definitely picking up globally. But if you look at some drawbacks they are at a different stage of their monetary policy cycle. Because if you look at the Fed for example, they are on the path of tightening very clearly, they’ve already increased rates once this year, and we expect them to tighten two more times this year: one in June, one in September. If you look at the eurozone and at the ECB, we actually expect the European Central Bank to start tapering quantitative easing by the end of this year. And if you look at the UK and the Bank of England, actually we expect a neutral bias, so we don’t expect much on that front. So very clearly you can see that while the ECB is reducing easing, the Fed is already on the path of tightening. And that creates opportunities for global fund managers, because those technical aspects will have different impacts on their domestic markets, and create opportunities for us in terms of investments. PRESENTER: Have you got a simple worked example of perhaps the type of company you’d want to buy in the States at the moment but that you wouldn’t want to buy in Europe? NICOLAS TRINDADE: Well let’s put it this way, there are some companies I can get access in the US market that I wouldn’t be able to get access in the European market. So a lot of energy companies I will be able to get access to those companies in the US. I wouldn’t be able to get access to those companies in Europe, because they just don’t issue in euros and sterling. And so they will be the type of companies that I would be focusing in the US bucket of my global portfolio, because it’s something I can’t get access anywhere else. And because we expect a pickup in growth in energy companies, and energy names should benefit from that. PRESENTER: One thing I suppose anybody who lends money is always worried about is will they get it back. What’s the default cycle looking like at the moment? Because you’ve mentioned energy companies in the States, and I think certainly a couple of years ago that was, there was quite a lot of worry about whether people were going to get their money back. NICOLAS TRINDADE: Yes, definitely, and about a year and a half ago, I mean at the back of 2015 early 2016, I mean it was a very difficult time for energy companies, and particularly for Shell companies. Because we saw a big drop in oil prices, and the outlook at the time was really bleak. And that forced actually energy companies to take the necessary action to try to strengthen their balance sheets, and make sure that they were going concerns. What it means, it means that the companies that are left now are the best in class companies because they already went through these really tough times. But if you look at the default cycle it’s still very muted. We expect default rates to slightly pick up. They’re still really muted by historical standards. That is because we are in a very benign environment, where we still have a little support from central banks, still very low rates, which means that for companies it’s very easy to refinance. And on the other side growth is gently picking up. So it’s a very positive environment for high yield companies. PRESENTER: Now you mentioned a couple of times the importance of getting duration right, interest rate risk. We’re talking first half of 2017 at the moment, but what are the key things to be thinking about when it comes to interest rate risk? NICOLAS TRINDADE: I think the most important thing to be wary of when you manage and when you look at your fixed income portfolio is where is your overall duration, and how is your duration split by currencies? So what is the contribution to duration of each of the different currencies in which you invest? Because we will, I mean you may have different views and different duration views according to the currencies. So for example right now we expect yields to rise faster in the US than in the eurozone, than in the UK. And so really you would be finding maybe slightly longer duration in the UK than you will be to be in the US or in the eurozone for example, because of that view. But overall we would definitely have a bias towards short duration. PRESENTER: So if a central bank is putting rates up, or you’re confident it’s going to put rates up, you want to have less exposure to interest rates in that country. NICOLAS TRINDADE: Exactly, that’s the spirit of it. But also what you need to be wary of is also the contagion effect. That is really applicable for the UK. Because we expect the Fed to increase rates two more times this year, so that should lead to higher yields. We also expect the ECB to taper quantitative easing, go down to zero at some point, which actually would bring, would push yields higher. And even in the UK we expect the Bank of England to have a fairly neutral bias, and not increase rates before at least two years. Because of what’s happening in the US and the eurozone we still expect yields to go higher in the UK also. And that’s why I mean the contagion effect also is very important. It’s not only about central bank policies. It’s also about the global environment, what impact it may have on your own domestic market. And that’s why from the perspective of having a short duration bias in the UK I still think is something that is important, because of what’s going to happen globally and the impact it’s going to have domestically on the UK. PRESENTER: Historically are the bond markets any good at working out when central banks are going to raise or cut rates? NICOLAS TRINDADE: Very poor. Historically markets have been very poor at forecasting when interest rates are going to go up. And they got it wrong for quite a long time with the US and with the Fed, because for a long time the market thought that the Fed will increase rates, and it kept on not happening or not happening until it actually happened. But I think here the case for the Fed increasing rates is much stronger than what it has been for a very long time. And that’s why we’re quite confident in that view, and we’re quite confident that the Fed should increase rates two more times this year. PRESENTER: So what would you say to an investor who said well as an industry you’ve been really bad at predicting when I should take interest rate risk, so why should I trust you now that you’re telling me not to? NICOLAS TRINDADE: Well the first point is the one I already made, is that from an economic perspective I think the mandate for the Fed to increase rates is very strong. And that’s why we expect the Fed to increase rates. If you look at the ECB and the eurozone, again because of core inflation is picking up, because growth is picking up, we definitely expect tapering, which will lead to higher yields. So that’s the first thing. Then the second thing to take into account is also the cost of going short duration. And here if you look at the cost of going short duration it’s quite low by historical standards. Because yield curves and credit curves are quite flat, and so the cost of going shorter is much lower than what it would have been maybe five or 10 years ago. PRESENTER: When you say that do you mean that you would make less money than if you had longer duration, or you would actually lose money if you had? NICOLAS TRINDADE: What I’m saying is that the cost of going shorter duration is lower than what it would have been five or 10 years ago. So basically the loss in yield is lower now than what it would have been five or 10 years ago if you basically shorten the maturities of your portfolio, shorten the duration. PRESENTER: But if the bond markets have got it right this time, and they see rates going up, won’t that have been priced into longer duration paper anyway? What’s happening to that? NICOLAS TRINDADE: I think what’s happening is about to turn right. And I think there’s some discussion about how high the turn right is going to be. Because we are in a hiking cycle where we started at a very low point, and obviously now there is some discussion in the market as to what’s going to be the final turn right. PRESENTER: What you mean the hike to which US interest rates get to? NICOLAS TRINDADE: Exactly, and here there’s still some debates in the market. But very clearly, so that’s the first thing. The second thing is also the pace of increasing interest rates. Right now the market, and we are expecting two increases in interest rates for 2017, but if for whatever reason growth is stronger than where we’re expecting in the US, or if the inflation is going higher, increasing at a faster pace than what the market is pricing in, that could push the Fed to increase rates at a much faster pace. And if that happens then what you would see is a big repricing in government bond markets globally. PRESENTER: And what’s the consensus view on what the height of the US interest rate cycle is likely to be, and when it’s likely to get there? NICOLAS TRINDADE: Well I mean right now the expectation of the consensus would be around 3-3½%. PRESENTER: And what by 2020 or something? NICOLAS TRINDADE: In terms of the time horizon yes, it would be about 2020, so within the next three years basically we’ll see this increase in interest rates to hit about 3%. PRESENTER: But in the grand scheme of things that’s a fairly gentle rise over time. NICOLAS TRINDADE: Yes exactly, and that’s the view. It’s a gentle rise over time. Because I think the Fed still wants to err on the cautious side. PRESENTER: And we’re talking about the rise of inflation, but not so long ago the big fear was about deflation. Has that all gone now, are we confident this is a world of? NICOLAS TRINDADE: I think it’s fairly gone now. I think as you know markets tend to go with themes, and very clearly over the last couple of years the big theme was deflation, and the Japanisation of world economies. But I think now it’s really moved towards more reflection theme. And that is partly due to the Trump presidency. Because very clearly the Trump agenda is very pro-growth, pro-inflation, and that’s why right now there’s a strong reflation theme that is really driving markets. PRESENTER: Does that worry you slightly, this belief that one man can make that much of a change anywhere in the world? I mean not least because some of the things he’s said he’s going to do have come up a little bit short when they’ve gone through the legal system for example. NICOLAS TRINDADE: Yes, I definitely agree. And we’ve already seen that his ability to implement all of his policies is fairly limited. He’s already failed some of the policies that he wanted to implement. But we still expect some tax cuts for households, for corporates, which should definitely help and boost spending in the US. So that’s the first thing. And if you look also in the eurozone we’ve really started to see strong activity in the eurozone. And if you look at the PMIs they are six year high, so there’s definitely green shoots of growth in the eurozone, which is something that is very positive and we haven’t seen for quite a long time. And we do expect that to translate into positive and healthy growth for the eurozone. PRESENTER: But when you look at something like the internet, which we’ve been hearing for so many years is having a deflationary impact on the economy, has that run out of steam now, or will that remain as a theme for many more years to come? NICOLAS TRINDADE: I think it will remain a theme for many years to come. That is simply because it’s very difficult to know in advance what kind of innovations we’re going to get in five/ten years’ time. And if you look at artificial intelligence for example, that’s a very promising field. And we can’t grasp yet all the implications of AI on the world. So very clearly I think it will keep on being a deflationary force for years to come. PRESENTER: One group of people we’ve heard about so much over the years as an engine for not just US but global growth is the US consumer. Again are you confident that the US consumer is now in good shape? NICOLAS TRINDADE: I am confident that the US consumer is in good shape as long as Trump manages to get some of this tax cuts through. If he doesn’t manage to get some of his tax cuts through, then that obviously will make, damage that sentiment, and that’s the main thing particularly. PRESENTER: Just a final few minutes. We were talking about the main central banks and how they’re all at a slightly different stage in the cycle. But what are some of the things that could go wrong for them? I mean you’ve touched on it there in the States a little bit, but what could go wrong? NICOLAS TRINDADE: I think what could go wrong with central banks is if they start becoming much more hawkish on the economy, and so much more hawkish in terms of their monetary policies. We already talked about the big risk in the US that the Fed could potentially be more hawkish and start increasing interest rates at a much faster pace. We have a little bit the same issue in the eurozone. They could start tapering quantitative easing earlier or at a faster pace than what the market is currently pricing in. So that potentially could create some issues. And even in the UK if you look at the Bank of England, it has had quite a neutral bias over the last couple of months. But, you know, if growth still on being healthy in the UK you have the reason to be, we start tightening policy. And then we still no more, we don’t have any more clarity on the kind of Brexit deal we’re going to get. PRESENTER: Yes. NICOLAS TRINDADE: And that obviously could down the line be quite a big issue for the UK economy. PRESENTER: We talked through a lot in the course of the last half hour, just to bring this together Nicholas, what do investors need to think about to make sure that their bond portfolios are fit for purpose for say the next five years? NICOLAS TRINDADE: I think the first step is to look at your duration. Check that you are happy with the duration on your portfolio. That it reflects the views that you have. If you share our views that we’re going to see higher growth and higher inflation, then you may want to have a short duration bias on your fixed income portfolio. So that’s the first thing. Then the second thing is to look at global opportunities. If you are addressing this thing in sterling for example, is there a case to go global, not only from a regional perspective, also from a credit perspective. PRESENTER: Yes. NICOLAS TRINDADE: Should you look at high yield, should you look at emerging markets, and should you look at other investment grade markets? So that would be the second thing to look at. And then if you decide to go global, do you want to take currency risk on that? In our case we don’t take currency risk, because that would be the main driver of performance. But that’s something also that you need to understand, you need to be happy with. PRESENTER: We have to leave it there. Nicholas Trindade, thank you. NICOLAS TRINDADE: Thank you very much. This material is for professional clients only and must not be relied upon by retail clients. Circulation must be restricted accordingly.