Ignis’s flagship Absolute Return Government Bond team has taken profits from a major contrarian call on the Japanese yen, which it classed as a key trade.
The fund last week passed its three-year anniversary and has already grown to almost £3bn as investors have bought into the team’s macro views and consistent returns.
The fund – run by a team that includes head of rates Russ Oxley, chief economist Stuart Thomson and chief investment officer Chris Fellingham – adopted a short position on the Japanese yen, which would gain money if the currency depreciated against sterling, in October 2012.
However, the Ignis team removed the position after Mr Oxley met Bank of Japan governor Haruhiko Kuroda at the end of last year.
Helen Farrow, product specialist on the team, said that Mr Oxley came out of that meeting, and others with Japanese officials, feeling there was “too much complacency” within the Bank of Japan and that it was “not doing enough to push through reforms”.
As a result of Mr Oxley’s trip to Japan, the Ignis team immediately reversed its position on the Japanese yen and established a long position on the currency, betting that it would appreciate, which would negatively affect the competitiveness of Japanese companies internationally.
This was a contrarian call as many managers were bullish on Japan and expected the yen to keep depreciating.
This position has proved fruitful for the fund this year, as the yen has performed strongly and the Japanese stockmarket has fallen. The managers have now cut the position back because of the view Japan will embark on further stimulus measures to boost the economy following the rise in consumption tax last week, which could mean that the yen will begin to depreciate again.
Another big bet is the fact the fund has a short duration stance, meaning it is more protected from rises in interest rates.
This is because the Ignis team expects the Bank of England to raise the UK’s base interest rate towards the end of 2014, much earlier than the current market consensus of 2015.
The team predicts the UK rate rise will be followed by a rise in the US interest rate in the first quarter of 2015 – also earlier than market expectations.
Ms Farrow said some market participants expect central banks to keep rates low for fear of deflation.
But she said the downward pressures on inflation has come from outside influences, and domestic inflation in the UK – which would be the main area impacted by a rate rise – is rising strongly enough to cope.
The runaway success of the fund in gathering assets has made it one of Ignis’s flagship funds already. It was highlighted by Standard Life Investments (SLI) as one of the standout reasons behind its move to acquire Ignis, announced last month. The whole team, including Mr Fellingham, is set to be brought across to SLI intact.
SLI said it viewed the fund as the perfect complement for its Global Absolute Return Strategies (Gars) fund due to its uncorrelated and defensive makeup.
