Ignis Asset Management’s head of credit Chris Bowie has carved himself out a reputation as something of a perennial bond bear, at least in the past year. But he admits he is seeing some light at the end of the tunnel, even if it is just a glimmer for now.
“I am not as bearish as I was but I am still cautious,” he admits. But does he think it is time to buy yet? “No”.
The manager of the £263m Ignis Corporate Bond and £67m Absolute Return Credit fund sold all his own personal corporate bond holdings more than a year ago and “bet the ranch” on the latter vehicle. He eventually cashed out when he relocated to London and bought a family home.
Of course, Mr Bowie, who is responsible for more than £14bn in assets and oversees a team of four portfolio managers and nine analysts, acknowledges that income-seeking investors inevitably need a substantial amount of bonds, but he urges them to avoid aggressive funds.
He explains: “I am 42 years of age. I have at least another 20 years’ work ahead of me, so given my investment horizon I would rather be invested in a real asset like property than in bonds right now.”
Mr Bowie is far from being alone when it comes to distancing himself from the bonds. According to the latest IMA numbers, in June a flurry of retail investors turned their back on the asset class, as fixed income portfolios endured their highest rate of redemptions ever, at £624m.
“When I am meeting discretionary fund managers, many have portfolios that require a fixed allocation to bonds. What I am saying to them is if you have to buy bonds, buy me. I will beat the peer group and the benchmark because I am aware of the risks. I will give you a decent income – not the best income, but one with lower capital risks than the average.”
His plan appears to be working. The Ignis Corporate Bond fund, which presently yields some 3.41 per cent, is up by 38 per cent in five years, 23 per cent in three, and 7 per cent in one – ahead of the sector average on each occasion.
For its part, the Ignis Absolute Return Credit fund marked its first anniversary at the end of July. The fund exclusively uses derivatives and a pair-trading strategy, going, say, long Aviva but short on Axa. “We think we can beat cash as long as volatility remains high,” he says. In its first year of trading it managed a
1 per cent return versus 0.42 per cent against its benchmark (SONIA overnight cash rate).
It is refreshing to hear a fund manager speak in such a bluntly candid manner about their specialist asset class, and no doubt investors’ ears will pick up when he eventually says “buy”. But for that to pass his lips, he first needs to see “sustainable growth and positive real yields”.
“It is not all bearish, it is just that volatility will be very high. Unless you are the sort of investors who can trade in and out of the asset class very quickly, I would suggest your longer term asset allocation should still be away from fixed income towards other asset classes until real yields become far more attractive.”