Fixed Income  

Liontrust bond fund to focus on EMs

The manager of Liontrust’s Global Strategic Bond fund will focus on emerging market debt when the fund opens for business next month.

Michael Mabbutt, who joined Liontrust as head of global credit from F&C Thames River at the beginning of the year, said the only areas of the bond market which currently showed signs of “absolute value” were corporate and government bonds in emerging markets.

Speaking at Liontrust’s annual conference, Mr Mabbutt said: “In bonds you have to look at absolute and relative value. All areas look cheap relative to cash, but the two areas which stick out with absolute value are emerging market corporates and emerging market sovereigns.

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“We will start with a bias more towards emerging market sovereign bonds, as emerging market corporates are more illiquid.”

Mr Mabbutt added that he would be avoiding developed market corporate bonds as yields had contracted meaning investors were not being compensated for illiquidity in this area of the market.

The manager also stated that he was “less bearish” regarding the dollar than many bond managers.

Several of Mr Mabbutt’s peers, including Old Mutual Global Investors’ Stewart Cowley and M&G’s Mike Riddell, have recently issued warnings on the economic outlook for the US and its currency, but the Liontrust manager said the dollar still had value relative to other major currencies.

“The dollar is at the cheapest it has been since the late 1970s,” Mr Mabbutt said. “The US’s energy bill is declining and it is becoming more self sufficient.

“In addition if the Federal Reserve starts to raise rates because of a strong recovery in the US then the interest rate differential will benefit the dollar.”

The manager said the Global Strategic Bond fund would have the ability to short areas of the market but emphasised that he was unlikely to move the fund to negative duration.

Mr Mabbutt also highlighted that the fund would have an advantage in the market when it launched due to its small size compared with the largest funds in the market which may struggle to unwind large positions quickly.

Although Liontrust is not planning a formal cap on the fund, Mr Mabbutt said he would feel “uncomfortable” if the fund exceeded £1bn - but he emphasised this would depend on prevailing market conditions.

The Liontrust Global Strategic Bond fund will be based in Dublin and marks the company’s first venture into fixed income since it sold its credit hedge fund business to Avoca Capital in 2011.