Kames’ Snowden: We cannot deny bond liquidity problems
Kames Capital star bond manager Stephen Snowden has launched an attack on big bond funds, saying the “time for denial of a liquidity problem has gone”.
Mr Snowden, who runs the £462.1m Kames Investment Grade Corporate Bond fund, said the recent action by the FSA - which surveyed corporate bond fund liquidity earlier this year - should serve as a signal that the shortage of liquidity must be taken seriously.
“We have to accept that corporate bond market liquidity is a challenge,” the manager said. “That trend is very much going to get worse.
Mr Snowden also cited L&G bond manager Richard Hodges, who told a national newspaper recently that “anyone who says liquidity is not a problem is lying”.
As well as the FSA’s action, UBS recently announced it would be scaling back its fixed income trading business due to the increasing regulatory burden placed upon it.
Mr Snowden said the positive movement in the Swiss bank’s share price showed that shareholders viewed fixed income market making as costly with low returns - which had further pressurised the ease at which bond managers can buy and sell assets. He said Barclays had also come under pressure to review its position as a fixed income trader.
Some of the UK’s biggest bond fund managers have been addressing fund capacity this year. M&G has begun talks with larger clients to slow inflows into its giant Corporate Bond and Strategic Corporate Bond funds, but crucially the company did not say this was to deal with liquidity issues.
Manager Richard Woolnough said in July that the decision was “in the interest of investors” to slow inflows and “control growth”.
“As the funds have become larger it has become more difficult to implement investment views, nonetheless we’ve achieved our investment objectives and continue to implement our views,” Mr Woolnough added.
In October Invesco Perpetual’s co-head of fixed income Paul Read said there was a strogner case for equities than bonds in many cases, but did not cite liquidity as an issue.
He said: “We have to be very honest and say there is not a lot of value in a lot of government bond markets and questionable value in investment grade corporates.”