goldman sachs global strategic income bond portfolio … · each specialist fixed income strategy...

The GS Global Strategic Income Bond Portfolio is a way to access investment opportunities from across the entire Fixed Income universe.

GOLDMAN SACHS GLOBAL STRATEGIC INCOME BOND PORTFOLIOA SUB-FUND OF GOLDMAN SACHS FUNDS SICAV

Be flexible. Go anywhere.

This marketing communication is issued on 04-Apr-14 for use with retail investors in the United Kingdom.

GOLDMAN SACHS GLOBAL STRATEGIC INCOME BOND PORTFOLIO

2 Please refer to the glossary at the back for investment terms.

Be flexible. Go anywhere.In the current environment of recovering economic growth and rates near historical lows, yield hungry investors face slim pickings — and serious risks. Given this difficult investment landscape, we believe that investors may benefit from seeking returns via a fund that has the flexibility to look across the full range of fixed income opportunities, as eligible under UCITS.

The fund seeks to produce long-term income and capital growth by investing in a diversified portfolio of mostly fixed income.

Fund objective


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• At Goldman Sachs Asset Management (GSAM), we believe in this environment it is important that a dynamic fixed income (bond) portfolio is able to capitalise on economic trends, manage market risks and effectively react to geopolitical uncertainties

• We believe that an unconstrained fixed income product can offer a solution

Please remember that the value of investments may go down as well as up and you may not get back the amount invested. For more information about the suitability of this investment to meet your individual goals, please speak to your financial adviser.


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Source: GSAM market observation. For illustrative purposes only.

Flexible, dynamic allocation

With the ever-changing nature of the markets, we believe it is important to have the flexibility to adjust fixed income sector allocations to make the most of the opportunities as they change with global economic performance.

Please refer to the glossary at the back for investment terms.

Decline

Peak

Trough

Recovery

Peak

Economy

Time

Cash/Derivatives

Securitised

Sovereign debt

Corporate credit

Emerging market debt

Theoretical asset allocation


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• Interest rate risk. When interest rates rise, bond prices fall, reflecting the ability of investors to obtain a more attractive rate of interest on their money elsewhere. Bond prices are therefore subject to movements in interest rates which may move for a number of reasons, political as well as economic. Fluctuations in exchange rates can also affect your investment.

• Financial derivatives. We use financial derivatives to help manage these risks but are complex and add additional risks themselves.

• The chance of default. When investing in bonds, whether they are issued by governments or companies, the main risk is a default. This is when the issuer of the bond declares bankruptcy and is unable to pay its debts. The portfolio may also invest in “High Yield” bonds, which bear greater risks of default than higher rated bonds. Bond investors in general receive repayment ahead of equity investors.

Understanding the main risks

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Traditional bond portfolios are constrained by the allocations and performance of the benchmark index of reference – a basket of bonds aimed at representing a fixed income sector. During stable market conditions, investors were able to benefit from consistent returns. However, with today’s uncertain investment landscape, we are not convinced that investors can expect the same advantages.

We believe that it may benefit investors to consider a strategic allocation

to a fixed income portfolio that is unconstrained by such a benchmark index.

The GS Global Strategic Income Bond Portfolio is not tied to a benchmark index and as such is free to seek investment opportunities from across the entire fixed income spectrum, as eligible under UCITS rules, which the GSAM Fixed Income Team sees as most appealing.

We believe that the GS Global Strategic Income Bond Portfolio, through adjusting allocations opportunistically, can allocate capital to fixed income sectors that offer

in the view of the GSAM Fixed Income Team attractive risk-adjusted return potential while limiting exposure to unattractive sectors.

Fixed Income has had a good run, but what next?


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• Interest rate uncertainty: If rates were to rise, newly issued bonds would offer higher yields, resulting in a decrease in demand for existing bonds that offer a lower rate of return. These existing bonds would therefore fall in price in order to match the yield of the newly issued bonds. On the contrary, if rates were to fall, bonds with yields higher than the interest rate would become more desirable and therefore their price would rise. With interest rates at near historical lows, we believe they will most likely increase over the longer term – putting bond prices at risk of falling.

Pricesfall

Yields rise

Pricesrise

Yieldsfall

For illustrative purposes only.

When rates rise... When rates fall...

The impact of interest rate movements

• Geopolitical landscape: As it has been demonstrated through events in the Middle East in the recent past, the geopolitical landscape can change in an instant. These actions can have severe implications for investments. Having the ability and conviction to react swiftly is essential to make the most of a changing opportunity set.

A helpful approach for investors when considering:

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Bond portfolios lose value if either the issuer of the bond, be it a government or a corporation, run into financial difficulty and default on a repayment, or if interest rates rise (as explained on the previous page).

To manage the risk of a default, our team undertake research into the credit worthiness of an issuer to decide whether or not to invest. However, by being unconstrained, this portfolio is also able to use financial derivatives to sell bonds in anticipation of a rise in rates. This process can cause a portfolio to take a ‘negative duration’ - a term which describes a bond portfolio who’s value can go up even if interest rates rise. It is important to note that financial derivatives are complex and add additional risks.

To find out more about the effects of interest rate changes on a bond portfolio, we advise you speak to your financial advisor.

We actively manage interest rate risk


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As outlined below, fixed income sector opportunities can vary significantly from year to year. The best performing fixed income sector has changed in each of the previous 3 years. If, for example, an investor had been impressed by the performance of US Treasury bonds in 2011 and invested in a portfolio benchmarked to this sector, in 2012 they may have missed the opportunity presented in Emerging Markets Debt External.

Worst performing FI sectors Best performing FI sectors

2011 2012 2013 2011 2012 2013

EMD Local

-1.75

US Treasuries

1.99

EMD Local

-8.98

US Treasuries

9.81

EMD External

18.54

High Yield

7.44

Annual total return by fixed income sector (%) Source: GSAM. US Treasuries: Barclays US Treasury Index; US Agencies: Barclays US Agency Index; EMD External: JPM EMBI Global; CMBS: Barclays CMBS Index; EMD Local: JPM GBI-EM Global Diversified Index.

Given the dynamic nature of the macroeconomic landscape, we believe that in order to

make the most of the opportunities and to react effectively to risks requires the

flexibility to adapt.

How we address macroeconomic developments

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Three reasons to consider the Goldman Sachs Global Strategic Income Bond Portfolio

Active management of interest rate risk. The more time there is remaining until a bond holder receives the full amount of its face value, the more scope there is for interest rates to affect the value of the bond. While interest rate risk can contribute positively to a bond’s total return when rates fall, should they rise, exposure to this risk may have a negative effect. With interest rates at near historical lows we believe investors should prepare for a rise in rates in the long term. As our portfolio is not tied to a benchmark, it can take a ‘negative duration’ offering the possibility to make positive total returns irrespective of rate changes.

Proprietary risk management model. The fund may be unconstrained in its approach but this does not mean there are ‘no constraints’ to how the fund is managed. GSAM is considered one of the industry leaders in the development of risk management methods and technology. Understanding the intricacies of risk management and its role in today’s market environment is an integral part of our investment culture.

Unconstrained, active security selection. Constantly changing market conditions require close monitoring and timely adjustments to sector allocations. The portfolio is not constrained to a benchmark and, as such, is able to invest in a wide range of fixed income and currency markets that we believe will generate returns in the given market environment. Each specialist fixed income strategy team uses their expertise to aim for positive returns in different market phases.


1

2

3


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As one of the world’s leading asset management firms, GSAM applies insights and risk management expertise to provide solutions for institutional and individial investors (via an adviser) to help meet their current and future financial goals.

• Our in-depth understanding of local economies, markets and cultures helps us provide global perspectives to our clients. We analyse firsthand, for example, how India’s demand for food can increase grocery prices in a different continent – or how Brazil’s production of sugar ethanol can affect the price of petrol at a service station in France.

• Analytical insights derived from such first-hand observations enable our teams to apply sound, thoughtful judgement when determining which investments to make.

About us


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GOLDMAN SACHS GLOBAL STRATEGIC INCOME BOND PORTFOLIO GOLDMAN SACHS GLOBAL STRATEGIC INCOME BOND PORTFOLIO

At a glance: Goldman Sachs Global Strategic Income Bond Portfolio

How does it invest? The Portfolio will mostly invest in publicly traded securities, currencies and financial derivative instruments, mostly in the global fixed income and currency markets. Cash and cash like instruments such as money market funds may also be held for temporary purposes to meet operational needs and to maintain liquidity or otherwise as the Investment Adviser sees fit. The Portfolio uses derivatives as part of its investment policy to gain exposure to interest rates, credit and/or currencies in order to seek to generate a higher return and to hedge against certain risks. A significant proportion of the Portfolio’s exposure may be generated through the use of derivatives.

Who is it managed by?The fund is managed by the GSAM Global Fixed Income team. Currently with over $375 billion in assets under supervision and more than 250 investment professionals located around the world*, GSAM’s Global Fixed Income team has the breadth and depth to cover every sector of the global Fixed Income market. The team is structured in eight top-down/ bottom-up Strategy Teams and includes some of the industry’s most experienced sector specialists averaging over 20 years of investment experience through multiple market cycles.


* As at 31-Dec-13.


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The Goldman Sachs Global Strategic Income Bond Portfolio may appeal to investors who are looking to:

• Generate fixed income returns in different market cycles, potentially mitigating risk in deteriorating markets while capitalising on investment opportunities in improving markets.

• Opportunistically diversify their traditional fixed income allocation via an unconstrained sector allocation.

• Have access to a dynamic allocation to fixed income by investing in a fund that seeks to adapt rapidly to prevailing economic and market conditions.

Investor profile

GOLDMAN SACHS GLOBAL STRATEGIC INCOME BOND PORTFOLIOGOLDMAN SACHS GLOBAL STRATEGIC INCOME BOND PORTFOLIO

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Other share classes are available.Please note, changes in foreign currency exchange rates can have a significant effect on your returns, as the share class you invest in may be denominated in a different currency to the assets of the fund or a different currency to your home currency.

Assets under Supervision (AUS) – Includes assets supervised by GSAM and its investment advisory affiliates. AUS includes client accounts for which Goldman Sachs does not have full discretion.

Benchmark – A benchmark is a basket of bonds representing the market, e.g. a specific sector or a geographical region. Comparing a fund to the returns achieved by the benchmark is a way of evaluating its performance.

Commercial Mortgage-Backed Securities (CMBS) – A mortgage-backed security secured via a loan on a commercial property.

Corporate Credit – Bonds issued by a company.

Financial derivative / Derivative instrument – A financial product whose price is determined by the performance of another asset.

Duration – A measure of the sensitivity of a bond’s price to interest rate movements.

Emerging Markets Debt External – Emerging Market debt issued in another country’s currency.

Emerging Markets Debt Local – Emerging Market Debt issued in local currency.

Issuer – The company, government or other entity issuing a bond.

Liquidity – An indication of how easy it is to buy or sell a particular asset.

GLOSSARY

KEY FACTS (Before making an investment in the fund, please ensure that you read the fund’s Key Investor Information Document (KIID), which is available at www.gsam.com/kiids.)

Domiciled in: Luxembourg

Geographical reach: Global

Reference benchmark: 3 Month Libor (USD)

Launch date: March 2011

Available currencies: USD, EUR, GBP

Legal form: A sub-fund of Goldman Sachs Funds SICAV, which is an investment company within segregated portfolios under Luxembourg law

R share class

Currency GBP

Income Annual distribution

Minimum investment: 3,000 GBP

Management fees 0.60% p.a.

Operating expenses 0.25% p.a.

Initial sales charge Up to 5.50%

ISIN code LU0858299638

GOLDMAN SACHS GLOBAL STRATEGIC INCOME BOND PORTFOLIOGOLDMAN SACHS GLOBAL STRATEGIC INCOME BOND PORTFOLIO

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To find out more about the Goldman Sachs Global Strategic Income Bond Portfolio or to access the latest fund information, please contact your financial adviser.

This information discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice. This material has been prepared by GSAM and is not a product of Goldman Sachs Global Investment Research. The views and opinions expressed may differ from those of Goldman Sachs Global Investment Research or other departments or divisions of Goldman Sachs and its affiliates. Investors are urged to consult with their financial advisors before buying or selling any securities. This information may not be current and GSAM has no obligation to provide any updates or changes. This document has been issued by Goldman Sachs International, authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.This material is provided at your request for informational purposes only and does not constitute a solicitation in any jurisdiction in which such a solicitation is unlawful or to any person to whom it is unlawful. It only contains selected information with regards to the fund and does not constitute an offer to buy shares in the fund. Prior to an investment, prospective investors should carefully read the latest Key Investor Information Document (KIID) as well as the offering documentation, including but not limited to the fund’s prospectus which contains inter alia a comprehensive disclosure of applicable risks. The relevant articles of association, prospectus, supplement, KIID and latest annual/semi-annual report are available free of charge from the fund’s paying and information agent and/or from your financial adviser. Shares of the fund may not be registered for public distribution in a number of jurisdictions (including but not limited to any Latin American, African or Asian countries). Therefore, the shares of the fund must not be marketed or offered in or to residents of any such jurisdictions unless such marketing or offering is made in compliance with applicable exemptions for the private placement of collective investment schemes and other applicable jurisdictional rules and regulations.Financial advisers generally suggest a diversified portfolio of investments. The fund described herein does not represent a diversified investment by itself. An investor should only invest if he/she has the necessary financial resources to bear a complete loss of this investment.This material must not be construed as investment or tax advice. Prospective investors should consult their financial and tax adviser before investing in order to determine whether an investment would be suitable for them. This material is not financial research and was not prepared by the Goldman Sachs Global Investment Research. It was not prepared in compliance with applicable provisions of law designed to promote the independence of financial analysis and is not subject to a prohibition on trading following the distribution of financial research. The views and opinions expressed herein are valid as of the date of this publication only and may differ from the views and opinions expressed by the Global Investment Research or other departments or divisions of Goldman Sachs and its affiliates. Goldman Sachs International has no obligation to provide any updates. Further to above please note that the latest offering documentation is also available free of charge at:United Kingdom: Goldman Sachs International, Peterborough Court, 133 Fleet Street, London EC4A 2BB, United KingdomLuxembourg: State Street Bank Luxembourg S.A., 49, avenue J.F. Kennedy, L-1855 Luxembourg; RBC Investor Services Bank S.A, 14, Porte de France, L-4360 Esch-sur-Alzette, Luxembourg Switzerland: Goldman Sachs Bank AG, Münsterhof 4, 8001 Zurich, Switzerland, in Switzerland in addition from the fund’s representative (First Independent Fund Services Ltd, Klausstrasse 33, CH-8008 Zurich, Switzerland).1 As of 30-Sep-13. 2 As of 30-Sep-13.© 2014 Goldman Sachs. All rights reserved. Compliance code: 115492.OSF.OTU

Negative Duration – Strategy used by a portfolio manager with a high conviction outlook that interest rates will rise. By adjusting the holdings in the portfolio, a manager can amend the average duration to make it negative. A portfolio with a ‘negative duration’ may increase in value when interest rates rise.

Securitised – A financial product created by combining several types of different assets, splitting them up and bringing them to market.

Sovereign Debt – Another name for government bonds.

Unconstrained – A portfolio that is not restricted to investing in the financial instruments set by a benchmark.

Undertakings for Collective Investment in Transferable Securities (UCITS) – A set of European Union Directives that aim to allow collective investment schemes to operate freely throughout the EU on the basis of a single authorisation from one member state but also set a series of constraints in how they invest.

US Agency Mortgage-Backed Securities (US Agencies) – The purchase of mortgage-backed securities issued by US government-sponsored agencies.

US Treasuries – US government bonds with a duration of less than one year.

GSAM – the key facts

• GSAM is one of the world’s leading investment managers.

• With more than 2,000 professionals across 32 offices worldwide, GSAM provides institutional and individual investors with investment and advisory solutions, with strategies spanning asset classes, industries and geographies1.

• GSAM has more than $850 billion in assets under supervision2.

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