Next Generation Global Bond Strategy

By 2050, 48 countries around the world will have smaller populations than they do today. In addition, fewer workers will have to support an increasingly large number of dependents; straining government finances with shocking implications for the wealth of many nations, especially those already burdened by high debt loads.

Some countries are ageing more rapidly than others, but almost all countries are expected to see an increase in the average age of their populations over the next few decades. Japan, which is widely known to have had an ageing population will see the country’s average age increase from 47 to 53 by 2050. However, by 2050 Japan will be surpassed by South Korea as the country with the oldest population in the world with an average age of 54.

Median age of selected countries 2015 – 2050

Source: United Nations, Department of Economic and Social Affairs, Population Division (2017). World Population Prospects: The 2017 Revision

Source: United Nations, Department of Economic and Social Affairs, Population Division (2017). World Population Prospects: The 2017 Revision

However, the ageing of populations is only part of the story. More importantly, changes in the size of the working age population can have a significant impact on economic growth. In Europe, the decline in working age populations is particularly challenging.

Change in Working Age Population (excluding migration) 2015 – 2050

Source: United Nations, Department of Economic and Social Affairs, Population Division (2017). World Population Prospects: The 2017 Revision

Source: United Nations, Department of Economic and Social Affairs, Population Division (2017). World Population Prospects: The 2017 Revision

As an example, Germany had a working age population of 54 million in 2015, but this will shrink to just 37 million workers by 2050. However, Germany benefits from the fact that it has amassed substantial assets abroad, which on a net basis equates to around 55% of GDP. This means that Germany can draw down on its overseas investments to supplement its loss of income resulting from a reduction in the working age population.

Other countries in Europe are not so fortunate, with many countries experiencing both a shrinking working age population and net foreign liabilities to foreigners of more than 50% of GDP; a threshold that has been associated with heightened economic risks.

However, whilst there are numerous countries with shrinking working age populations, there are also a large number of countries with growing working age populations. As a continent, Africa is expected to have by far the most rapid population growth with the working age population expected to grow by 139% by 2050 from the levels of 2015. Most of those countries do not have hard currency bonds and so are excluded from our investable universe. Nevertheless, there are plenty of countries with outstanding hard currency bonds which also have rapid population growth.

Change in Working Age Population (excluding migration) 2015 – 2050

Source: United Nations, Department of Economic and Social Affairs, Population Division (2017). World Population Prospects: The 2017 Revision

Source: United Nations, Department of Economic and Social Affairs, Population Division (2017). World Population Prospects: The 2017 Revision

Population changes are not an emerging market versus developed market phenomenon though. Many countries that are considered to be in the emerging universe have positive net foreign assets whilst many developed market countries are heavily indebted. In our view the distinction between EM & DM is a false one, and instead we prefer to consider the world as being divided between creditors and debtors. Other things being equal, the countries which are highly indebted and have shrinking working age populations are in a very difficult position versus the countries that are both wealthier and have more rapidly growing populations as well.

Population growth is an important driver of economic growth and inflation, thus, bond yields and population growth are inextricably linked. Using forecasts of population growth rates and projections for net foreign assets to measure the wealth of nations, we hope to identify the winners and losers as the world population ages. This approach is very different to most fund managers who often follow indices which give the biggest weights to the most heavily indebted companies and countries which take no account of future trends. Fund management involves making judgements about the future, which is why Stratton Street Capital launched the Next Generation Global Bond Fund (NGGBF) a year ago.

The AIF structure launched in July 2016 and UCITS launched in December 2016.

What is the Next Generation Strategy?

  • Available in AIF or UCITS structures with a combined AUM of USD 170m
  • Aimed at providing high income and a superior overall return from both DM and EM bonds over market cycles
  • Targets undervalued investments which amplify capital appreciation while reducing downside risks
  • Potential to invest up to 20% in sub-investment grade credit and can take currency exposure up to 25%

Why invest in the Next Generation Strategy?

  • NFA analysis and macro forecasts optimise the country and credit quality positioning throughout the cycle
  • Unconstrained by indices so proprietary global pricing model allows selection of undervalued credits
  • The currency exposure is based on Stratton Street’s proprietary models
  • Use of NFA analysis & primary focus on IG space to allow better downside capital protection & lower volatility
  • Actively managed duration to manage the interest rate exposure as the Fed tightens monetary policy
  • Benign global inflation remains supportive for fixed income

Key Facts

  • High, single A rated portfolio (this varies depending on the stage of economic cycle)
  • Gross redemption yield of circa ~ 4%

Click here to contact us 

PDF version


Please read this important information before proceeding. It contains legal and regulatory notices relevant to the information on this site.

This website provides information about Stratton Street Capital LLP ("Stratton Street"). Stratton Street is authorised and regulated by the UK's Financial Conduct Authority. The content of this website has been prepared by Stratton Street from its records and is believed to be accurate but we do not accept any liability or responsibility in respect of the information of any views expressed herein. The information, material and content provided in the pages of this website may be changed at any time by us. Information on this website may be out of date and may not be updated or removed.

The website is provided for the main purpose of providing generic information on Stratton Street and on our investment philosophy for the use of financial professionals in the United Kingdom that qualify as Professional Clients or Eligible Counterparties under the rules of the United Kingdom Financial Conduct Authority (the "FCA"). The information in this website is not intended for the use of and should not be relied on by any person who would qualify as a Retail Client. Products and services referred to on this website are offered only at times when, and in jurisdictions where, they may be lawfully offered. The information on this website is not directed to any person in the United States. The provision of the information on this website does not constitute an offer to purchase securities to any person in the United States (other than a professional fiduciary acting for the account of a non-U.S person) or to any U.S. person as such term is defined under the Securities Act of 1933, as amended.

The website is not intended to offer investors the opportunity to invest in any Alternative Investment Fund ("AIF") product. The AIFs managed by Stratton Street are not being marketed in the European Economic Area ("EEA") and any eligible potential investor from the EEA who wishes to obtain information on the AIFs will only be provided with materials upon receipt by Stratton Street of an appropriate reverse solicitation request in accordance with the requirements of the EU Alternative Investment Fund Managers Directive ("AIFMD") and national law in their home jurisdiction. By proceeding you confirm that you are not accessing this website in the context of a potential investment by an EEA investor in the AIFs managed by Stratton Street and that you have read, understood and agree to these terms.

No information contained in this website should be deemed to constitute the provision of financial, investment or other professional advice in any way. The website should not be relied upon as including sufficient information to support any investment decision. If you are in doubt as to the appropriate course of action we recommend that you consult your own independent financial adviser, stockbroker, solicitor, accountant or other professional adviser. Past performance is not necessarily a guide to the future. The value of investments and the income from them may go down as well as up. An application for any investment or service referred to on this site may only be made on the basis of the offer document, key features, prospectus or other applicable terms relating to the specific investment or service.

Where we provide hypertext links to other locations on the Internet, we do so for information purposes only. We are not responsible for the content of any other websites or pages linked to or linking to this website. We have not verified the content of any such websites. Such websites may contain products and services that are not authorised in your jurisdiction. Following links to any other websites or pages shall be at your own risk and we shall not be responsible or liable for any damages or in other way in connection with linking.

By using this site, you should be aware that we may disclose any information that we hold about you to any regulatory authority to which we are subject, or to any person legally empowered to require such information.

This website uses cookies to improve user experience, by clicking the "I Accept" button below means you consent to the use of cookies on our website.