As the bull run in the bond market nears an end, JO Hambro Investment Management (JOHIM) Director Jeff Keen has highlighted the importance of flexibility and currency diversification in the firm’s Waverton Global Bond Fund strategy.
Speaking at yesterday’s Waverton breakfast briefing, said: “As we come to the end of a 30 year bull run in the bond market a high degree of flexibility is needed. Our core view is that Government bond yields will continue to rise over time because real yields are too low, even after the sharp rise in yields over the last six months. The US Government lacks a credible debt reduction plan and this is a potential negative for the dollar and could lead to higher bond yields. We think that credit spreads will tighten, leading to outperformance of corporate bonds over Government bonds. Solid corporate balance sheets and sustained economic growth should see credit spreads tighten to pre-crisis levels and perhaps further.
"We are 100% flexible on currency and this plays a big part in our decision making. At the moment we are focussing on currencies with stronger economic fundamentals and rising interest rates. Rising food prices could push inflation higher and will keep the pressure on emerging market economies to keep increasing interest rates which is likely to be currency positive. We have constructed the fund to provide a diversified exposure away from the major currencies, where the fundamentals are weaker. For example, we have increased our Asian currency allocation to around 40% despite the fact that conventional global bond indices would have very little exposure to the region.
“The bond markets face considerable headwinds which means that investors need a flexible approach to eke out respectable returns in this asset class.”
