Do you remember the Great Financial Crisis?

14/06/2019

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John Pattullo, Co-Head of Strategic Fixed Income, explains how after the failure of QE to generate any sustainable growth or inflation the dial has turned to various forms of fiscal policy. But as he argues, a successful formula has to combine fiscal and monetary policies with structural reform.




What crisis?


"Do you remember the Great Financial Crisis?“ Ahh — you mean the one we are still in…

It is rather amusing that we sometimes get asked the above question. We need to remind some clients that we are very much still in the crisis.

The crisis happened for a number of reasons but primarily because of the enormous amounts of debt raised by households, corporations and governments. Hence, a lot of the economic ‘growth’ was financed by increasing debt in an unsustainable way. Remember the ‘Great Moderation’?1 Hmm…

Eleven years on, as the chart demonstrates, the vast majority of countries have more debt than before the crisis began — a few have managed to partially reduce their debt. So, how on earth can the crisis be over?

Debt loads higher than pre-crisis

Source:  Thomson Reuters Datastream, BIS, Janus Henderson Investors, change in aggregate debt, 2008 versus 2018, annual, as at 31 December 2018
Note: Aggregates for household, corporate and government


There are no easy solutions to reducing too much debt. A number of options are available, such as growth and inflation (which are hard to come by), austerity, default and/or financial repression2 (more on this later). But the not so distant past may have lessons that can help.

Japanification alert!
It was back in 2011 that we started talking about Richard Koo’s balance sheet recession3 thesis. It is extraordinary how reading one book (The Holy Grail of Macroeconomics: Lessons from Japan’s Great Recession, 2009) can completely change your view on economics and the bond markets.

In 2009, he prophetically forecast that Europe would turn Japanese. We have talked about this for years but it is only recently that our inbox has become full of ‘Japanification’ articles on Europe. This backdrop explains why we have maintained a much longer duration in our portfolios for much of the time compared to many in our peer group, given our rejection of mainstream conventional economics.

Rather bizarrely, we are pleased to still get some push back on our views from the (older) part of our client base, which means there is still money to be made in bonds. Some of our clients remain short of duration or have tried their luck diversifying into alternatives, away from quality, long duration bonds. Most though, who are younger than me (49 in May — urgh!), agree with our disinflationary outlook.

We feel that the long-term secular drivers such as demographics, technology, excessive debt and low productivity, will dominate and lead to lower global bond yields. We doubt whether we can sustainably breakout into higher inflation and growth but it does not mean that politicians, with a democratic mandate, could try something completely different (more on this later).

Wot no growth, wot no inflation?
Here’s the title slide from our 2013 UK New Year Conference presentation.

Our 2013 presentation cover — still relevant today? 

Source: Janus Henderson Investors, January 2013

In the presentation we highlighted how small the money multiplier4 could be compared to the fiscal multiplier5 in a severely depressed economy. Our message was that fiscal policy tools should be employed to restore growth but there was no political will at the time for such measures.

The Global Financial Crisis was no ordinary recession; this was a ‘balance sheet’ recession whereby individuals and corporates changed their behaviour towards borrowing and spending after the trauma of experiencing negative equity. In such circumstances, lowering interest rates does no good and policies focusing heavily on the monetary side may not be effective, as we have seen.

Monetary policy broadly became independent in the 1990s (in many countries) with the aim of taking politics out of the business cycle. Keynesian fiscal expansion was pretty much dismissed by conventional economists during this period as being ineffective. As the dogmatic Maastricht Treaty removed the possibility of fiscal expansion in Europe, the ‘one-clubbed golfer’ of independent interest rates seemed to be the only policy tool.

While it is true that quantitative easing (QE) has massively expanded the monetary base, as Mr Koo demonstrates, it completely decoupled from the growth in bank lending and money supply. We have definitely created asset price inflation in Wall Street6 with no ‘trickle down’ effect into Main Street6. The palliative needed was something along the Koo Theory.

Koo Theory
In ‘Koo Theory’, the government needs to borrow all the private sector surplus7 and redistribute via fiscal policy8 to stop the economy shrinking into oblivion. This very much chimes with the secular stagnation9/excessive savings hypothesis of American economist, Larry Summers. Unfortunately, our policymakers do not subscribe to the Koo thesis. If all this surplus is not redistributed you get a deficit of demand and deflation10 — anyone mention Europe?

Why then was monetary policy not combined with fiscal policy? Surely, they should be complementary and not treated as substitutes. Italy, for example, would have welcomed (still welcomes) a massive fiscal expansion (even though the Maastricht Treaty prevents it). As Koo points out, you need structural reform before a fiscal expansion otherwise it will fail. Indeed, he said that 80% of the necessary change is structural reform, followed by fiscal expansion. Note that this third arrow11 of structural reform was never delivered in Japan.

Somewhat ironically, the inequality brought about by QE has led to the populist backlash in developed economies as well as calls for Modern Monetary Theory (MMT)12/fiscal expansion — but let’s not confuse the two for now. 

Anyway, what’s all this MMT chat?
Modern Monetary Theory is really just a politicisation of fiscal spending with unlimited constraint. No one constrained the British and the American fiscal expansion in World War II (WW2); tanks and warships were needed, so they were made. The idea was that governments spend as much as needed to achieve the desired outcome and worry about financing the deficit at a later stage.

So, after the abject failure of QE to generate any sustainable growth or inflation, the political dial has now turned to fiscal policy. Now, governments are always keen to inflate away their debt13 — by running inflation higher than the nominal yield on the debt that they issue. This policy is called financial repression and is one way to deleverage an economy (reduce debt). Interestingly, the reduction in debt generally happens via growth in the economy (ie, higher GDP), which reduces the debt as a percentage of GDP but rarely a reduction in the absolute level of debt.

Since only very low inflation could be generated, interest rates had to go even lower to try to reflate the economies but also to enable negative real interest rates (to repress you and I!). Rest assured, further financial repression is both required and necessary to reduce global debt levels but the current rate of progress is too slow.

Times are different now?
The economic downturn that we are in is not going to recover to previously normal levels. Given poor demographics and productivity, the future trend rate of growth in both the US and UK is around 1.5-1.75%. We are in a different regime after the ‘heart attack’ of 2008 — one of low growth, low inflation and increasing financial repression. As mentioned earlier, Richard Koo has called for a wartime response on the fiscal side as this is wartime economics but currently nobody has the political mandate to justify such a response, although things are changing fast.

So this brings us back to MMT
The theory that a government cannot default on its debts if those debts were issued in its own currency is not new. There is also a vast amount of economic literature on whether fiscal deficits matter. Still, this is certainty getting a big (political) push nowadays. 


It is hard to argue that significant expansion in infrastructure, housing, technology, transport and education would not boost the economy and, would surely have a much bigger multiplier effect than QE. The tricky bit is how it is financed and the potential repression (redistribution) of wealth that goes with it. Could such a stimulus offset the long-term secular drivers?  Possibly, but we are not convinced.

In Koo’s words, “MMT proponents are correct in arguing we need enough fiscal stimuli to absorb the private sector savings surplus. However, this does not necessarily mean we need the central bank to directly finance the stimulus”*. This is a key point in the MMT debate, which many people confuse — the stimulus should be funded from a private sector savings surplus not by the central bank.
 
*Nomura, Richard Koo, research paper titled: "MMT and the EU's growing sense of crisis", 23 April 2019

MMT fears — UK to be a test case?
What if the UK tried a massive Corbyn’s ‘People’s QE’14 programme? Well, it depends on its credibility and how it is financed. This could be accompanied by rising gilt yields, inflation and a sterling crisis — or possibly not. Bondholders would be repressed as inflation took off. Yield curves could steepen aggressively while the rich would be taxed heavily. Could the Bank of England lose its independence? We feel this scenario is less likely, but that does not mean we are not worried about markets worrying about it.

A more subtle, more palatable, approach could involve the central bank anchoring bond yields at a low (repressing) level set by law. The government could then issue endless bonds to the central bank to finance the fiscal expansion. This would be a more controlled expansion with some repression. It would probably involve capital controls (to stop capital escaping overseas) and financial regulation, eventually forcing financial institutions to be forced buyers of gilts once the central bank is full!

Neither sounds great for bondholders; but again, and as always, we turn to Japan where they still have not conjured up any meaningful or sustainable growth or inflation. One of their main impediments is the combination of abysmal demographics and lack of structural reform.

America and China have had some success with fiscal expansions, whereas Greece, Cyprus and Iceland have already had several degrees of repression and indeed capital controls. Many forget that UK citizens were repressed for decades post WW2 under varying forms of legislation. France, also massively reduced large government borrowing levels after WW2 by running inflation (at times over 20%) but keeping bond yields at around 6% by law. UK citizens are currently being repressed with bond yields at 1% but inflation at 2%.

So what will work?
We have sympathy for fiscal, monetary and structural reform — working together — but say no to MMT if badly financed. It is the combination of these factors that is key.

Fiscal policy can be effective if credibly financed and used at the right time in the cycle. Further, it must be invested and not consumed. Debate continues about the financing angle with regards to MMT, much of which is political and highly ideological (the heterodox school of economics), to which this is no definitive answer. Politics may also throw a spanner in the works as to the effectiveness (or credible financing) of a fiscal expansion.

Approach and positioning
We remain flexible in our approach but are mindful of MMT risk and hence remain very selective by company, and by country when we invest our clients’ money. Living in the UK, having studied the Japanese experience but investing in developed world bond markets, may not be a bad position to assess the scene and provide sensible bond returns going forwards.

Though forecasting is tricky, today we actually think US bond yields are cheap and, as real yields are positive, there is still capital to be made in US bond markets while that economy slowly turns Japanese. The UK and parts of Europe already have negative real yields (we are being repressed slowly). Our portfolios are barely exposed to UK corporate bonds for good reason and we prefer US corporate (and government) bonds as well as Australian sovereign bonds.

We invest thematically in a secular sense — you will get shorter term cyclical swings such as the two-year Trump reflation trade, which can confuse the narrative — but we continue to believe that most developed world bond yields are heading lower. 



Glossary
  1. The Great Moderation: a period of economic stability characterised by low inflation, positive economic growth and the belief that the boom and bust cycles had been overcome. In the UK it generally refers to the period between 1993 and 2007.
  2. Financial repression: in simple terms, using regulations and policies to force down interest rates below the rate of inflation; also known as a ‘stealth tax’ that rewards debtors but punishes savers.
  3. Balance sheet recession: said to occur when high levels of private sector debt cause individuals and/or companies to focus on saving by paying down debt rather than spending or investing, which in turn results in slow economic growth or even decline. The term is attributed to the economist, Richard Koo.
  4. Money multiplier:  this refers to how an initial deposit can lead to a bigger final increase in the total money supply (the total amount of money within an economy).
  5. Fiscal multiplier: the ratio that shows how much a change in government spending or tax policy increases or decreases an economy's gross domestic product (GDP).
  6. Wall Street/Main Street: Wall Street refers to financial institutions (investment banks, research analysts), shareholders and corporations. Main Street refers to small businesses, locally owned banks, the working and middle classes and the economy.
  7. Private sector surplus: a private sector surplus means that households and businesses (combined) are net savers.
  8. Fiscal policy: a government policy relating to setting tax rates and spending levels. It is separate from monetary policy, which is typically set by a central bank. Fiscal austerity refers to raising taxes and/or cutting spending in an attempt to reduce government debt. Fiscal expansion (or stimulus to boost the economy) refers to an increase in government spending and/or a reduction in taxes, thereby increasing government debt.
  9. Secular stagnation: a prolonged period of low or no economic growth within an economy (excessive savings act as a drag on demand, reducing economic growth and inflation).
  10. Deflation: a decrease in the price of goods and services across the economy, usually indicating that the economy is weakening — the opposite of inflation. Note: disinflation is a decrease in the rate of inflation - prices are still rising but at a slower rate.
  11. Third arrow: this refers to the expansionary policies of Japan’s Prime Minister, Shinzo Abe. In 2013, he introduced a set of aggressive monetary and fiscal policies combined with structural reforms — referred to as the ‘three arrows’ (1st monetary, 2nd fiscal and 3rd structural) — aiming to pull Japan out of its decades-long deflationary slump.
  12. Modern Monetary Theory (MMT): an unorthodox approach to economic management, which in simple terms argues that countries that issue their own currencies can ‘never run out of money’ the way people or businesses can. In other words, governments that have control of the monetary policy are not constrained by tax revenues for their spending. Developed in the 1990s, it has recently become a major topic of debate among US Democrats and economists.
  13. Inflating away debt (financial repression): inflation reduces the value of money, thus it reduces the real value of debt but also the real value of savings.
  14. People’s quantitative easing: a policy proposed by the UK Labour Party leader, Jeremy Corbyn, which would require the Treasury (Debt Management Office) to create money to finance government investments on infrastructure via a public investment bank.



     

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Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested.

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Janus Henderson Fixed Interest Monthly Income Fund

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Issued by Janus Henderson Investors. Janus Henderson Investors is the name under which investment products and services are provided by Janus Capital International Limited (reg no. 3594615), Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (each registered in England and Wales at 201 Bishopsgate, London EC2M 3AE and regulated by the Financial Conduct Authority) and Henderson Management S.A. (reg no. B22848 at 2 Rue de Bitbourg, L-1273, Luxembourg and regulated by the Commission de Surveillance du Secteur Financier). We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Copies of the Fund’s prospectus are available in English, French, Spanish German and Dutch. Key investor information documents are available in English, Danish, German, Finnish, French, Italian, Norwegian, Spanish, Swedish and Dutch. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from the local offices of Janus Henderson Investors: 201 Bishopsgate, London, EC2M 3AE for UK, Swedish and Scandinavian investors; Via Dante 14, 20121 Milan, Italy, for Italian investors and Roemer Visscherstraat 43-45, 1054 EW Amsterdam, the Netherlands. for Dutch investors; and the Fund’s: Austrian Paying Agent Raiffeisen Bank International AG, Am Stadtpark 9, A-1030 Vienna; French Paying Agent BNP Paribas Securities Services, 3, rue d’Antin, F-75002 Paris; German Information Agent Marcard, Stein & Co, Ballindamm 36, 20095 Hamburg; Belgian Financial Service Provider CACEIS Belgium S.A., Avenue du Port 86 C b320, B-1000 Brussels; Spanish Representative Allfunds Bank S.A. Estafeta, 6 Complejo Plaza de la Fuente, La Moraleja, Alcobendas 28109 Madrid; Singapore Representative Janus Henderson Investors (Singapore) Limited, 138 Market Street, #34-03/04 CapitaGreen, Singapore 048946; or Swiss Representative BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich who are also the Swiss Paying Agent.

Information on this document is on Henderson's best endeavours.

Specific risks

  • Some or all of the Annual Management Charge and other costs of the Fund may be taken from capital, which may erode capital or reduce potential for capital growth.
  • This fund is designed to be used only as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this fund.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • When the Fund, or a currency hedged share class of the Fund (with ‘Hedged’ in its name), seeks to mitigate (hedge) exchange rate movements of a currency relative to the Fund’s base currency, the hedging strategy itself may create a positive or negative impact to the value of the Fund due to differences in short-term interest rates between the currencies.
  • An issuer of a bond (or money market instrument) may become unable or unwilling to pay interest or repay capital to the Fund. If this happens or the market perceives this may happen, the value of the bond will fall.
  • The Fund may use derivatives towards the aim of achieving its investment objective. This can result in 'leverage', which can magnify an investment outcome and gains or losses to the Fund may be greater than the cost of the derivative. Derivatives also introduce other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
  • Changes in currency exchange rates may cause the value of your investment and any income from it to rise or fall.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • The Fund invests in high yield (non-investment grade) bonds and while these generally offer higher rates of interest than investment grade bonds, they are more speculative and more sensitive to adverse changes in market conditions.
  • When interest rates rise (or fall), the prices of different securities will be affected differently. In particular, bond values generally fall when interest rates rise. This risk is generally greater the longer the maturity of a bond investment.
  • Securities within the Fund could become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.

Risk rating

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Please read all scheme documents before investing. Before entering into an investment agreement in respect of an investment referred to in this document, you should consult your own professional and/or investment adviser.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change.

If you invest through a third party provider you are advised to consult them directly as charges, performance and terms and conditions may differ materially.

Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment.

Any investment application will be made solely on the basis of the information contained in the Prospectus (including all relevant covering documents), which will contain investment restrictions. This document is intended as a summary only and potential investors must read the prospectus, and where relevant, the key investor information document before investing. Copies of the Fund’s prospectus and key investor information document are available in English, French, German, and Italian. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from Janus Henderson Investors registered office: 201 Bishopsgate, London EC2M 3AE.

Issued by Janus Henderson Investors. Janus Henderson Investors is the name under which investment products and services are provided by Janus Capital International Limited (reg no. 3594615), Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (each registered in England and Wales at 201 Bishopsgate, London EC2M 3AE and regulated by the Financial Conduct Authority) and Henderson Management S.A. (reg no. B22848 at 2 Rue de Bitbourg, L-1273, Luxembourg and regulated by the Commission de Surveillance du Secteur Financier). We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Copies of the Fund’s prospectus are available in English, French, Spanish German and Dutch. Key investor information documents are available in English, Danish, German, Finnish, French, Italian, Norwegian, Spanish, Swedish and Dutch. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from the local offices of Janus Henderson Investors: 201 Bishopsgate, London, EC2M 3AE for UK, Swedish and Scandinavian investors; Via Dante 14, 20121 Milan, Italy, for Italian investors and Roemer Visscherstraat 43-45, 1054 EW Amsterdam, the Netherlands. for Dutch investors; and the Fund’s: Austrian Paying Agent Raiffeisen Bank International AG, Am Stadtpark 9, A-1030 Vienna; French Paying Agent BNP Paribas Securities Services, 3, rue d’Antin, F-75002 Paris; German Information Agent Marcard, Stein & Co, Ballindamm 36, 20095 Hamburg; Belgian Financial Service Provider CACEIS Belgium S.A., Avenue du Port 86 C b320, B-1000 Brussels; Spanish Representative Allfunds Bank S.A. Estafeta, 6 Complejo Plaza de la Fuente, La Moraleja, Alcobendas 28109 Madrid; Singapore Representative Janus Henderson Investors (Singapore) Limited, 138 Market Street, #34-03/04 CapitaGreen, Singapore 048946; or Swiss Representative BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich who are also the Swiss Paying Agent.

Information on this document is on Henderson's best endeavours.

Specific risks

  • Some or all of the Annual Management Charge and other costs of the Fund may be taken from capital, which may erode capital or reduce potential for capital growth.
  • This fund is designed to be used only as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this fund.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • When the Fund, or a currency hedged share class of the Fund (with ‘Hedged’ in its name), seeks to mitigate (hedge) exchange rate movements of a currency relative to the Fund’s base currency, the hedging strategy itself may create a positive or negative impact to the value of the Fund due to differences in short-term interest rates between the currencies.
  • An issuer of a bond (or money market instrument) may become unable or unwilling to pay interest or repay capital to the Fund. If this happens or the market perceives this may happen, the value of the bond will fall.
  • The Fund may use derivatives towards the aim of achieving its investment objective. This can result in 'leverage', which can magnify an investment outcome and gains or losses to the Fund may be greater than the cost of the derivative. Derivatives also introduce other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
  • Changes in currency exchange rates may cause the value of your investment and any income from it to rise or fall.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • The Fund invests in high yield (non-investment grade) bonds and while these generally offer higher rates of interest than investment grade bonds, they are more speculative and more sensitive to adverse changes in market conditions.
  • When interest rates rise (or fall), the prices of different securities will be affected differently. In particular, bond values generally fall when interest rates rise. This risk is generally greater the longer the maturity of a bond investment.
  • Securities within the Fund could become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.

Risk rating

Janus Henderson Strategic Bond Fund

Please read all scheme documents before investing. Before entering into an investment agreement in respect of an investment referred to in this document, you should consult your own professional and/or investment adviser.

Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change.

If you invest through a third party provider you are advised to consult them directly as charges, performance and terms and conditions may differ materially.

Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment.

Any investment application will be made solely on the basis of the information contained in the Prospectus (including all relevant covering documents), which will contain investment restrictions. This document is intended as a summary only and potential investors must read the prospectus, and where relevant, the key investor information document before investing. Copies of the Fund’s prospectus and key investor information document are available in English, French, German, and Italian. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from Janus Henderson Investors registered office: 201 Bishopsgate, London EC2M 3AE.

Issued by Janus Henderson Investors. Janus Henderson Investors is the name under which investment products and services are provided by Janus Capital International Limited (reg no. 3594615), Henderson Global Investors Limited (reg. no. 906355), Henderson Investment Funds Limited (reg. no. 2678531), AlphaGen Capital Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no.2606646), (each registered in England and Wales at 201 Bishopsgate, London EC2M 3AE and regulated by the Financial Conduct Authority) and Henderson Management S.A. (reg no. B22848 at 2 Rue de Bitbourg, L-1273, Luxembourg and regulated by the Commission de Surveillance du Secteur Financier). We may record telephone calls for our mutual protection, to improve customer service and for regulatory record keeping purposes.

Copies of the Fund’s prospectus are available in English, French, Spanish German and Dutch. Key investor information documents are available in English, Danish, German, Finnish, French, Italian, Norwegian, Spanish, Swedish and Dutch. Articles of incorporation, annual and semi-annual reports are available in English. All of these documents can be obtained free of cost from the local offices of Janus Henderson Investors: 201 Bishopsgate, London, EC2M 3AE for UK, Swedish and Scandinavian investors; Via Dante 14, 20121 Milan, Italy, for Italian investors and Roemer Visscherstraat 43-45, 1054 EW Amsterdam, the Netherlands. for Dutch investors; and the Fund’s: Austrian Paying Agent Raiffeisen Bank International AG, Am Stadtpark 9, A-1030 Vienna; French Paying Agent BNP Paribas Securities Services, 3, rue d’Antin, F-75002 Paris; German Information Agent Marcard, Stein & Co, Ballindamm 36, 20095 Hamburg; Belgian Financial Service Provider CACEIS Belgium S.A., Avenue du Port 86 C b320, B-1000 Brussels; Spanish Representative Allfunds Bank S.A. Estafeta, 6 Complejo Plaza de la Fuente, La Moraleja, Alcobendas 28109 Madrid; Singapore Representative Janus Henderson Investors (Singapore) Limited, 138 Market Street, #34-03/04 CapitaGreen, Singapore 048946; or Swiss Representative BNP Paribas Securities Services, Paris, succursale de Zurich, Selnaustrasse 16, 8002 Zurich who are also the Swiss Paying Agent.

Information on this document is on Henderson's best endeavours.

Specific risks

  • Some or all of the Annual Management Charge and other costs of the Fund may be taken from capital, which may erode capital or reduce potential for capital growth.
  • This fund is designed to be used only as one component in several in a diversified investment portfolio. Investors should consider carefully the proportion of their portfolio invested into this fund.
  • The Fund could lose money if a counterparty with which it trades becomes unwilling or unable to meet its obligations to the Fund.
  • If a Fund has a high exposure to a particular country or geographical region it carries a higher level of risk than a Fund which is more broadly diversified.
  • When the Fund, or a currency hedged share class of the Fund (with ‘Hedged’ in its name), seeks to mitigate (hedge) exchange rate movements of a currency relative to the Fund’s base currency, the hedging strategy itself may create a positive or negative impact to the value of the Fund due to differences in short-term interest rates between the currencies.
  • An issuer of a bond (or money market instrument) may become unable or unwilling to pay interest or repay capital to the Fund. If this happens or the market perceives this may happen, the value of the bond will fall.
  • The Fund may use derivatives towards the aim of achieving its investment objective. This can result in 'leverage', which can magnify an investment outcome and gains or losses to the Fund may be greater than the cost of the derivative. Derivatives also introduce other risks, in particular, that a derivative counterparty may not meet its contractual obligations.
  • If the Fund or a specific share class of the Fund seeks to reduce risks (such as exchange rate movements), the measures designed to do so may be ineffective, unavailable or detrimental.
  • The Fund invests in high yield (non-investment grade) bonds and while these generally offer higher rates of interest than investment grade bonds, they are more speculative and more sensitive to adverse changes in market conditions.
  • When interest rates rise (or fall), the prices of different securities will be affected differently. In particular, bond values generally fall when interest rates rise. This risk is generally greater the longer the maturity of a bond investment.
  • Securities within the Fund could become hard to value or to sell at a desired time and price, especially in extreme market conditions when asset prices may be falling, increasing the risk of investment losses.

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