Klempster overhauls fixed income stance

Momentum’s James Klempster has cut the duration of his fixed income exposure to close to zero in recent weeks.

Mr Klempster, who runs Momentum Global Investment Management’s three Factor Series multi-manager funds, said he was still finding opportunities to invest in selected areas of fixed income in spite of yields remaining near record-low levels.

The manager said: “Credit still has value. We prefer short-duration assets and areas like floating rate debt, where you still get well compensated. We also like hard-currency emerging market debt.

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“We have held a low-duration position in our funds since 2009 and we have almost zero duration now.”

A low duration in fixed income reduces a bond portfolio’s sensitivity to rising interest rates and can also protect it against market sell-offs driven by the expectation that rates will rise.

This strategy has protected some of the more flexible bond funds in recent months, as investors were spooked by the US Federal Reserve’s talk of an end to quantitative easing.

“We like strategic bond funds with a wide opportunity set,” Mr Klempster said. “Managers with wide toolkits and skillsets will be rewarded in volatile periods.”

More than £520m worth of net new retail money has been invested in the IMA Sterling Strategic Bond sector in 2013 up to the end of May, according to IMA statistics.

In contrast, institutional investors have withdrawn £188m from the sector in that period.

Mr Klempster has invested heavily in strategic bond funds across the Factor Series.

Elsewhere in the Factor Series funds, Mr Klempster said he was maintaining an overweight position in Japan, which he has held for two years – originally having invested in the country because “it was very cheap and discounted a lot of bad news”.

He added: “The painful trade of the previous 18 months in Japan has more than been made up for by the past six months.

“We were too early with Japan, but we believed in it fundamentally and it paid off. If something gets beaten up then people will keep away.”

Mr Klempster invests in Polar Capital’s $3.2bn (£2.1bn) Japan fund, managed by James Salter, which he said provided “core exposure to the region but with a moderate value bias”.

Since launch in the UK on November 5 2012, Momentum’s Factor 5 fund – the highest risk portfolio – has gained 10.2 per cent, compared with a 13.3 per cent average return from the IMA Mixed Investment 40-85% Shares sector.

The Factor 4 fund has gained 7.8 per cent in that time, while the Factor 3 fund has posted a 3.5 per cent return.