Global bond managers have the ability to go anywhere in search of performance, and some, such as Isobel Lee, manager of the Insight Investment Global (ex-UK) Bond Fund have targeted very specific areas such as Mexico, as well as European mortgage-backed securities.
Lee had no exposure to peripheral European issuers when things were going badly, but now sees some opportunities. “We’ve been more upbeat over the last nine months in Italy and Spain where the backdrop has been improving.”
Lee is also beginning to look at emerging markets following the sell-off over the summer. “We may be increasing investments in some of the higher grade markets, where they’ve taken policy moves to improve the outlook, places like Brazil where there have been structural reforms.”
Lisa Coleman, who runs the JPM Global Credit Bond Fund, said one decision she got right this year was her view on the Federal Reserve and any potential tapering. “We identified that even if the Fed began to taper there would still be a lot of liquidity; they would continue to pump money in. We needed to make sure we had a risk tilt to the portfolio, expressing this through allocations to high yield, convertibles and certain individual names. Some interesting credit stories were added, such as Telecom Italia for the first time.”
Coleman does not foresee any particular macro events that will impact her portfolio positioning. “The theme back in the spring was that Bernanke first highlighted the possibility of tapering, and we saw some wobbles. Now with some of the data having slowed down, and a transition to a new chairman, the likelihood of tapering this year feels quite low.”
Overall, added Coleman, bond fund managers do have to work a little harder. “For example looking at whether there are inefficiencies in bonds moving between investment grade and high yield. We’ve been active in contingent convertibles. We try to think a little bit outside the box.”
