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Home > Investments > European

By Bradley Gerrard | Published Aug 07, 2012

Carmignac bond manager puts 70% of fund in sovereigns

Carmignac Gestion’s Global Bond fund manager Charles Zerah has put more than two thirds of the fund into developed sovereign debt, in the belief yields will fall even further.

The manager (pictured) now has roughly 70 per cent of the fund in German, American and Australian sovereign bonds - assets that have rallied for several months as investors flocked into perceived ‘safe-havens’ amid growing fears about the eurozone crisis and economic growth globally.

The 10-year debt of the US is yielding 1.5 per cent, Germany less than 1.4 per cent and Australia 3.1 per cent at present - levels that have never been seen before and that some believe are unsustainably low.

This flight to safety was further highlighted last month when Germany sold two-year bonds - known as ‘bunds’ - at a negative yield for the first time on record.

Carmignac’s Mr Zerah predicted even further downward pressure on government yields and said the US and Germany could see their 10-year debt breaks further into new low territory.

His US exposure is mainly in 10-year and 30-year debt, his European exposure is mostly 10-year debt and his Australian predominantly 15-year debt.

“Bund yields have fallen but I am still looking to see lower yields,” he said.

“We can cross the 1 per cent mark for Germany and the US could go there as well.”

Elsewhere, Mr Zerah said when he took over the fund in March 2010, it had a 55 per cent exposure to credit - or non-government bonds - but now this is just 7.5 per cent.

He said European corporates had been supported by growth in emerging markets, but he expected this to wane.

“The German export market, for instance, has been performing very well thanks to China and many other emerging market countries’ booming domestic demand for luxury cars and various other things,” he said.

“But we have been given indications from the companies we meet in Europe that they are seeing a significant deceleration.

“I don’t think emerging market support is over but a deceleration of growth is likely compared with the past few years.”

Mr Zerah said where he does have corporate exposure it is in “quite conservative” positions with “very good visibility” in terms of earnings.

“I do like corporates but we are dealing with a global macro economic scenario which is quite gloomy,” he said.

“Because the macro outlook for Europe and the US is quite pessimistic in the short term we need to take into account the consequences for corporates.”

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