Barings has moved to a nil weighting in Japanese government bonds across all of its retail bond po...
Barings has moved to a nil weighting in Japanese government bonds across all of its retail bond portfolios.
Paul Thursby, who recently took over the management of four retail bond funds in addition to his responsibilities on the Baring Global Bond Trust and the Baring Sterling World bond fund, said the move is an active bet considering the high weight of Japanese bonds in the global bond indices.
Thursby has given up five of his institutional mandates in order to concentrate on the retail funds, which now include the Baring International Bond, Baring Currency managed, Baring World Bond and Baring Euro bond funds.
The portfolios were previously managed by Jeremy Yeats-Edwards, who is now focusing on growth of the group's institutional business.
Thursby continues to run three institutional accounts, although the investors within those funds are retail, he said. Thursby, who is supported on the funds by 14 portfolio managers, said most of the bond portfolios tend to be quite diversified with between 30 and 50 holdings, often similar securities but with varying weightings and currencies.
He uses the market forecasts from the in-house team to take a view and will be likely to take a stronger view and greater risk for the retail funds then he took with some of the institutional portfolios. Thursby said: "I now run less money and have fewer accounts so I can spend more time concentrating on these portfolios. The retail investor thinks differently to institutional investors. No retail investor would think buying Japanese government bonds at 2% yield is a good idea whereas the institutional players think they cannot underweight that area of the market."
Japanese bonds account for 26% of the Salomon Smith Barney Global bond index, making it too high a bet for institutional portfolio to take against the benchmark, he said.
The underweighting does increase the tracking error on Barings retail funds slightly for now but Thursby said he has not ruled out getting back into that area of the market when he feels the forecast is better.
He added: "The markets are ranging a bit these days, particularly on currency so we are using more currency management in the portfolios in order to add value."
At the moment, he said, there are better returns available in the US and European markets, which typically offer between 6% and 8% total returns.
Favouring both markets at the long end, Thursby is also looking to increase his weightings in US government inflation protected bonds. The bonds offer 4% real yield and the principle accrues at headline inflation rates.
Thursby said: "These are very attractive bonds and as they are not in the index people tend to ignore them. It has become purely a fund type product also because it has no tax benefits for the retail investor."
Corporate bonds are also starting to become more attractive after a difficult year, although they are not particularly cheap yet, he said.
Preferring bonds from supra nationals and government agencies for the time being, Thursby believes the volatile climate surrounding corporate bonds will depend a lot of what happens to the US economy.
Square Mile’s series of informal interviews
Fallout from Haywood suspension
Latest news and analysis
Drip-feed. Blend. De-risk