Currency selection

• In December, we closed an underweight position in the Australian dollar that we had held since early September, as we felt the currency was undervalued in relation to the prices of copper and iron ore, which are key exports of the country.
• Toward the end of the period, we closed an underweight position in the Canadian dollar, as the currency reached its weakest level in a month and we felt its run of depreciation had become overextended.
• In emerging markets, we closed an overweight in the Indian rupee in December. This was based on our view that uncertainty around the currency's outlook had increased following the implementation of the country's demonetization program in November.
• We went underweight the Polish zloty around the beginning of the period on our concerns over the worsening political situation in the country, as well as the risk of a rating downgrade of the country's debt by credit ratings agencies.

County/duration positioning

• We increased our underweight duration position in the UK throughout the period, based on our view that UK gilts are likely to come under further pressure amid the economic uncertainty in the UK following the Brexit vote, as well as ambiguity around the future direction of UK monetary policy over the coming year.
• We slightly trimmed our underweight duration position in eurozone government debt, but we still feel valuations in eurozone government bonds are rich, with yields trading at extremely low levels, particularly in core countries.
• In emerging markets, we moved to overweight positions in several countries in anticipation of hikes in interest rates by central banks, including Russia in November and Brazil late in the period. Midway through the quarter, we took profit on our overweight duration position in South Korea after the bonds had outperformed most other markets. We also closed our overweight duration position in South Africa in October after a government budget policy statement suggested the country was facing a delayed path of fiscal consolidation and debt stabilization, which could negatively impact the country's credit rating.

Sector allocation and security selection

• We retained exposure to European high yield bonds as these have the potential to benefit indirectly from the ECB's accommodative stance and Europe's credit-friendly part of the economic cycle with inflation low and the recovery moderate.
• Portfolio protection expressed via positions on European and U.S. high yield credit indices modestly detracted from relative returns during the quarter.