Year-to-date net outflows of £2.3bn have been driven entirely by the Dynamic Bond fund. The remainder of the mutual funds contributed net inflows of £400m over the first half of the year.
Speaking to Portfolio Adviser, Slendebroek (pictured) said the Dynamic Bond fund’s outflows are part of a wider aversion toward bond funds in an environment where the 10-year treasury yield is hovering near 3%.
The Jupiter boss pointed out the Dynamic Bond fund was popular in cross-border markets a year ago. In 2017, the fund contributed £3.5bn in net positive flows.
Now, he said, this trend has reversed and buyers from those same markets have been pulling money out. Since June 2017, the fund has seen its assets contract by nearly £2bn, taking assets under management from £9.09bn down to £7.12bn.
US slowdown
He also said the fund’s conservative position made in anticipation of a US slowdown has put off investors in Asia and Europe.
Bezalel’s current position hinges on a bet that the US economy will start to decelerate, which will be good for long-term bond yields and bad for junk bonds.
As such the Dynamic Bond fund is long 10-year Australian and US bonds and favours “high quality credit”.
“We have a longer duration in the fund than ever before, and we are more tilted toward the quality end of the spectrum than ever before,” said Slendebroek.
UK versus Asia
He said Bezalel’s view is popular in the UK, which explains why the Jupiter Strategic Bond fund, a mirror of the £7.1bn Sicav vehicle available to domestic investors, has not haemorrhaged money.
“Out in Asia the views are different,” said Slendebroek. “They obviously live in a part of world where the economic growth is higher anyway, so they project this on the whole world. They see a much more strongly growing US economy and are therefore less positive on the US 10-year bond and more optimistic for junk.”
European investors’ sentiment toward Dynamic Bond was more of a mixed bag, according to Slendebroek. Although the fund has seen net outflows from investors in continental Europe, Asia and the UK, Slendebroek said there was no clear trend across the entire region.
He said the European clients who did redeem were “ultra conservative” and had an even more defensive view than Bezalel’s, preferring to put their money straight into pure domestic bonds.
It has previously been suggested that European investors were withdrawing money from the fund because they were “flighty” when compared with their UK counterparts.
Slendebroek would not predict when the US economy might start decelerating. He reiterated that Jupiter does not have a “house view” and that this outlook represents the view of the fixed income team.
“At the moment, if our view turns out to be right it is likely we will be a winner in the next six months just as much as we were a loser in the first six months,” he said, adding “this could turn at any point but it doesn’t have to though”.
