Bezalel says he has been de-risking his portfolio quite aggressively in recent weeks, adding to positions in Australian and Canadian sovereign debt to provide some downside protection. “We’re in a time of a risk-off, flight to quality trade.”
He now has 27% in Australian government bonds and a further 5% in Canada, noting the two countries are among the finest in terms of credit quality. “There is a dearth of safe havens in government bonds right now,” he says, adding Australian debt is being chased up for that very reason.
As to UK gilts, Bezalel says he was amazed it hit record lows this week and he personally doesn’t see the appeal. In fact Bezalel says he can’t remember the last time he thought gilts looked attractive.
He believes the new lows in 10 year yields are a reaction to the US debt crisis but also in the belief the UK and its austerity measures were the right thing to do and been handled quickly. However, Bezalel feels perhaps investors are placing too much faith in George Osborne’s plans.
With economic growth virtually at a stand still and continued high debt, both in government and among consumers, he feels there is potential for gilts to be in the eye of the storm.
Jupiter Strategic Bond also has zero US government bond exposure as Bezalel has avoided going short the unpopular Treasury market. The US remains the world’s reserve currency and has the ability to print money, which means its dynamics are hard to see clearly, he says.
As part of de-risking the £425m fund, Bezalel has reduced his high yield exposure from around two-thirds of the fund to now under 50%. At the same time he has climbed up the ratings scale within the asset class and moved more into defensives, removing financial and cyclical names.
