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Jupiter’s Strategic Bond Fund delivers market-leading returns over five years

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European corporate credit, Australian government bonds and Mexican sovereign debt may offer some of the best opportunities in fixed income today but it has been the Jupiter Strategic Bond Fund’s ability to invest in a wide range of markets across the credit spectrum that has helped it earn its place as one of the top performing funds in its sector over five years, says fund manager Ariel Bezalel.

 
“The enormous flexibility of our mandate has put us in a position where we have the potential to generate returns at whatever stage of the economic cycle we may be in. Having the freedom to invest in areas like oil rig financing, pub securitisation or distressed bank debt has played an important role in delivering the superior performance expected of us by our investors,” says Bezalel (pictured).
 
The GBP1.5bn Jupiter Strategic Bond Fund is one of the top performing funds in its sector in the five years since its launch on 2 June 2008. Since this time the fund has returned 73.6 per cent compared to an average of 38.1 per cent for the IMA Sterling Strategic Bond sector in which it sits placing it second out of 49 funds in the sector. It has also beaten its benchmark, the iBoxx Sterling Non-Gilts (All Maturities) Index, which has returned 47.4 per cent over the same five-year period.
 
The fund was launched amid one of the most tumultuous periods in financial market history. In the first six months of the fund’s life, Lehman Brothers collapsed, the global economy came to a creaking halt and authorities across the western world were pulling out all the stops to restore confidence in a battered banking sector and stabilise financial markets.
 
These exceptional circumstances gave Bezalel the chance to display some of the qualities that have underpinned the performance of the fund since its launch including his ability to anticipate changes in the market and find excellent opportunities to put money to work.
 
“At the height of the financial crisis in 2008, forced selling had left valuations in corporate bonds at levels not seen since the 1920s and 1930s. There was little doubt that too many companies had taken on debt on the assumption that the good times were here to stay indefinitely, but the sell-off was pretty indiscriminate and there were some exceptionally attractive opportunities in the high yield and investment grade bonds of quality companies,” says Bezalel.
 
His investments in the financial sector during 2009 and 2010 highlighted his ability to time investments to achieve maximum returns for his investors. Encouraged by what he saw as tentative signs that several banks were beginning to sort out their balance sheets in early 2009, he invested in the bonds of high quality names such as Standard Chartered, Goldman Sachs and Barclays as well as selective distressed banks in Germany, such as IKB and Hypo Real Estate Bank International. The strategy paid off, helping the fund achieve a return of 27.4 per cent against a return for its benchmark index of 15.9 per cent between 30 June 2009 and 30 June 2010.3
 
Looking ahead, the contrasting fortunes of the US and European economies are throwing up both challenges and opportunities for the fixed income investor, according to Bezalel. The US, in his view, is putting together all the ingredients for a sustainable recovery and GDP growth of 2 per cent or more. Europe’s economy, by contrast, is struggling to produce growth of any sorts.
 
“Paradoxically, this situation makes European corporate bonds relatively more attractive than those in the US, although investors must remain selective. The improved economic outlook for the US raises the risk that interest rates will increase too quickly, prompting a flight out of investment grade and high yield bonds. In Europe, on the other hand, weak economic data is likely to keep a cap on yields, forcing investors to look to the corporate bond market for better returns,” he says.
 
Elsewhere, the appeal of Mexican government bonds lies in the profound structural reforms being undertaken in the country and the benefits it is reaping as more and more US companies choose to relocate their manufacturing facilities there from the Far East.
 
China, meanwhile, looms large in his decision to hold Australian government bonds.
 
“Australian economic growth is likely to ease significantly in a knock-on effect from a reduction in demand for Australian commodities from a slowing China. Australian government bond prices are likely to tick up as the market prices in further rates cuts before the end of the year to boost the country’s flagging economy,” says Bezalel.

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