Fixed Income  

Vix index shows investor complacency: Jon Mawby

GLG Partners’ Jon Mawby has warned that investors have become too complacent about “tail risks” to the global economy.

Mr Mawby, who has managed GLG’s £159m Strategic Bond fund since taking over from Christophe Akel, cited the current level of the Vix index at 15 as a sure sign of complacency from investors in spite of a number of potential threats to a global economic recovery and investor confidence.

The Vix, a measure of volatility linked to the S&P 500 index, fell back to 15 last month after spiking up in late August. It had been below 20 for much of the past 12 months in spite of the summer sell-off prompted by the threat of tapering of quantitative easing, but fell further in September.

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This compares with October 2011, just after the US’s credit rating was downgraded by Standard & Poor’s, when the Vix hit 46, and October 2008 following the collapse of Lehman Brothers when the index reached almost 90.

This has led Mr Mawby to be more “tactical” within his funds, he said, taking shorter-term positions and altering the fund’s duration – an indicator of its sensitivity to movements in interest rate expectations – quickly in order to respond to changing conditions.

“The market seems blasé about tail risks like the Middle East tensions, Japan’s massive financial experiment, Europe’s debt problems, and the government shutdown and debt-ceiling negotiations in the US,” he said.

“There was a rally after the US government shutdown. The market is complacent, which is symptomatic of being near the top.”

The manager has reduced the fund’s duration to near its lowest level, having previously increased it prior to the Federal Open Market Committee’s (FOMC) September meeting in which it decided not to taper its bond-buying programme.

“Prior to the FOMC meeting I started to think the potential for tapering was priced in and put the duration up to three years,” Mr Mawby said. “We’ve now taken that back as the momentum after the meeting didn’t support [a longer duration].”

Mr Mawby also warned investors could become complacent on inflation as real personal inflation effects were not being reflected in government data.

He added: “If, for example, we get renewed conflict in the Middle East it could lead to an oil price spike, which could then hit people’s inflation expectations.”

In the 12 months Mr Mawby has been running the funds, the GLG Strategic Bond fund has gained 8.2 per cent, according to FE Analytics, ranking it in the top quartile of the IMA Sterling Strategic Bond sector.

His Global Corporate Bond fund ranked in the second quartile of the IMA Global Bonds sector with a 2.7 per cent gain.