Bringing you live news and features since 2006 

Miles Gelderd, Jupiter Asset Management

Overvaluation of sovereign bonds and anomalies in certain currency values are primary focus


Miles Geldard, co-manager of the Jupiter Strategic Reserve Fund comments on the institutional fund’s outlook…

The strong rally in risk assets triggered by the ECB’s massive action to avert a liquidity (and solvency) crisis has run its course. However, when it comes to making progress towards a unified politico-economic solution to the eurozone’s fiscal fracture, Germany’s behaviour is instructive. Rather than throw a lifebelt to a drowning man it insists he takes swimming lessons. In contrast, the IMF, that arch advocate of austerity, has warned Europe that excessively punitive measures are counterproductive to economic growth.

Our primary focuses are interconnected: the overvaluation of sovereign bonds and anomalies in certain currency values. We believe that imbalances in the latter lie at the root of the problem facing financial markets. They have also created some extreme valuation distortions. We anticipate weakness in the yen, the South African rand, the euro and the Australian dollar. Our largest positions are negative duration exposures in certain western sovereign bond markets.

The Australian dollar has been unusually strong thanks to huge inflows into its sovereign bonds from overseas investors attracted by the comparatively high yield and triple-A rates safe haven status offered and wary of the dollar and the euro. In August 2011, the Greek debt crisis hit markets hard and intensified concerns. The bonds of safe havens such as Canada and Australia benefitted.

We began to take profits, selling into strength gradually. By the autumn, the Reserve Bank of Australia began to cut interest rates. In November it cut 25bps to 4.50% and then again in December to 4.25%. We reduced our holdings further and closed the remainder of our position in March 2012 after the bonds reached our yield target.

As Switzerland found out, safe haven status can force up a currency to unhelpful levels. In Australia’s case, a reliance on foreign ownership of its sovereign bonds alongside a fully-inflated property bubble and a waning in demand from the biggest buyer of its raw materials makes for a potentially fragile situation. In our view, the level of real interest rates put highly-leveraged households under pressure. We therefore think there is room for further rate cuts and for the Australian dollar to fall against the US dollar. We are positioned accordingly.

Latest News

REX Shares has announced a strategic reorganisation that integrates its REX Shares, MicroSectors, and T-REX products, as well as REX..
Allspring Global Investments writes that as it builds an investment platform for the future, it has filed for exemptive relief..
LSEG Lipper writes that ETF promoters in Europe enjoyed estimated net inflows (+EUR25.1 billion) for May 2024...
The European Fund and Asset Management Association (EFAMA) has published its 2024 industry Fact Book, which includes a foreword by..

Related Articles

Marcus Wayerer, Franklin Templeton
Franklin Templeton says that emerging markets are navigating a tricky environment at the moment, due to factors such as the...
Matt Barry, Touchstone Investments
Back in 2022, Cincinnati, Ohio-based Touchstone Investments launched its first four ETFs, having previously been predominantly a mutual fund company....
CN Tower, Toronto
The winners were announced in the second ETF Express Canadian awards at the event held at The Quay in Toronto,...
Darren Jordan, Komainu
Custody specialist, Komainu, was launched in 2018 as a joint venture between Nomura, digital-asset investment manager, CoinShares and blockchain business,...
Subscribe to the ETF Express newsletter

Subscribe for access to our weekly newsletter, newsletter archive, updates on the site and exclusive email content.

Marketing by