F&C Investments’ multi-manager team has increased its exposure to the underperforming Liontrust Global Strategic Bond fund.
The team, led by Gary Potter and Rob Burdett, said it had added Michael Mabbutt and Felix Martin’s fund to its Navigator Moderate fund last month because of its bullish view on emerging market debt.
It already held the fund in its MM Lifestyle Foundation fund, part of its risk-rated range.
The Liontrust duo launched the fund just before the mass sell-off sparked by then US Federal Reserve chairman Ben Bernanke’s comments about ending quantitative easing.
Mr Martin recently told Investment Adviser the fund’s positioning meant it was particularly badly hit, given that it had significant exposure to emerging market debt, which bore the brunt of the sell-off.
The fund also had a large short position on corporate high-yield bonds because the managers thought the sector was expensive and were looking to make money as and when it sold off.
This positioning has contributed to a loss of 10.7 per cent on the fund’s sterling-hedged shares since launch in February last year, according to data from FE Analytics, but F&C’s Kelly Prior said she thought the managers would bounce back.
“I think the rationale for owning debt and equity is quite different in emerging markets,” she said. “We are currently slightly underweight emerging equity given the impact of, among other things, geopolitics, currency, but most importantly better opportunities elsewhere.
“In the debt world, relative opportunities are less abundant, particularly in a real yield sense, though there are obvious areas of risk that are common, such as the impact of a rising dollar, which we take account of and think Mike and Felix are well placed to exploit.”
Ms Prior said the small Liontrust team had a focus on top-down analysis given it does not invest in individual company debt, only accessing corporate debt through derivatives.
“This is quite a different process to perhaps the more institutionally structured teams that typically would operate in this space,” she said.
“As a true strategic fund, there is a rare freedom to look at the most efficient vehicle to express a view, be it currency, cash bond or derivative, with short positions also being taken to achieve the best return.”
Ms Prior said the fund had “few formal guidelines” and had the ability to ‘short’ the market, which is to take advantage of price falls.
She said the fund could move entirely into cash if the managers wanted, adding: “In recent times, this has been close to 50 per cent reflecting the team’s bearish views.
“The team is currently bearish given the lack of real returns available, with the key to the current structure being the short through index derivatives, high-yield corporate debt in both US and Europe and a short on Japanese government bonds,” she said.
