There’s some truth in all three perhaps though, over the long term it’s easy to forget how much money investors too have made from entrusting in the talents of Richard Woolnough, Paul Causer and Paul Reed, Ariel Bezalel et al.
Still, bond market volatility and rate rise fears mean now may well be the right time to cut your exposure – if you can bear following the heard of retail investors selling out. And with that ongoing concerns about illiquidity are made real.
Rather than blaming individual manager decisions, perhaps we should be taking a closer look at the underlying structure of the funds they manage as well as our own expectations on both yield and growth.
For Ryan Hughes, fund manager at Apollo Multi-Asset Management, the structure of the bond market has fundamentally changed post credit crisis which has had a significant impact on the underlying liquidity of the market.
He says: “With regulators taking a robust stance with banks to make the financial system safer, banks have focused on increasing their capital ratios. This in turn has pushed banks away from the potentially higher risk areas of proprietary trading which underpinned their business through the years preceding the financial crisis.”
As a result, he explains, a significant provider of liquidity to the market has disappeared, with RBS recently concluding that liquidity had fallen by over 70% in the credit market since the start of the financial crisis.
“It is in times of stress when these investment banks previously have been prepared to take fixed interest positions onto their balance sheets, providing an exit route for investors who wanted to dump some of their holdings.”
Fixed interest is an OTC market, with both sides of the transaction needed for a trade to be executed – there is no market maker, which can in turn create problems particularly for bonds down the capital structure.
“With no middle man in place to lubricate the market with liquidity, a seller has to wait until there is a willing buyer on the other side of the transaction,” adds Hughes.
