Bond bombshell
On starting his career in 1997 at the now defunct Mercury Asset Management, Gartside confesses the “little known secret” that he spent his early days on the emerging markets equity desk before moving on to bonds, an area that “no-one was really interested in”. How things have changed.
With investors currently obsessing over the end of a so-called 30-year bond bull market, how optimistic is Gartside in being able to meet investor demand for high returns, or at least high yields?
While acknowledging the problem, he is keen point out that the bonds available today are very different to what was on offer decades ago.
“Thirty years ago, the bonds available were gilts and not much else. When you look at that bond world today, you’ve got an ability to access non-UK bonds and a host of individual bond sectors.
“Thirty years ago, there were no real emerging market bonds; there are many today. High-yield bonds and even a lot of investment-grade corporate bonds didn’t really exist, as they do today. So, you’ve got a lot more different bonds available to you and not all those bonds are equal.”
While gilts and other developed market government bonds may not offer great value, Gartside and his peers in the strategic bond space have the ability to diversify and invest without reference to a benchmark.
“If I think of the flexible strategies we run, we’ve got much lower durations, so we can protect against the idea of interest rates going up,” he says.
While the team refuses to rule out investing in any particular areas of the fixed-income spectrum, there are markets Gartside is willing to say are unattractive, including the aforementioned gilts and excessively low-yielding German bunds.
In terms of sectors that the team does find attractive, Gartside immediately points to banks, particularly the “national champions” in the UK, Switzerland and Scandinavia.
He says: “Banks have raised lots of capital and have also de-levered. Over the years, they’ve got rid of a lot of poor loans from the balance sheets. You obviously need to be selective but banks are probably our favourite sector in the corporate world.”
In terms of currencies, much of the team’s trading activity is restricted to emerging markets bearing in mind an, admittedly broad-brush, assumption that these territories are still growing at much faster rates than developed countries.
“We would buy a Brazilian bond and we would take Brazilian real exposure, and we tend to do that really on an idiosyncratic basis,” Gartside says.
