Fixed Income  

Bezalel adds new powers to Strategic Bond fund

Jupiter’s Ariel Bezalel is preparing to implement new powers in his £1.8bn Strategic Bond fund to use derivatives to hedge exposures and react more quickly to market movements.

The powers were added to the fund late last year and Mr Bezalel said the “infrastructure” to support the use of derivatives would be ready “in the next few weeks”.

“At times it may be hard to get out of certain areas so we can hedge out [using derivatives] instead of being forced sellers,” he said.

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“We’ve also had pretty good inflows and so we need a quick way of getting exposure instead of buying cash bonds.”

The manager said the move was “playing catch up” with other strategic bond funds which already employ more complex strategies to cope with larger amounts of assets.

He added: “A £1.8bn fund does become that bit more cumbersome to move around so we’ve now got more flexibility.” However, Mr Bezalel insisted that he had not found liquidity to be a significant issue “but we are mindful of a black swan event”.

The manager has bought into Australian government bonds as a hedge against the Chinese economy’s growth rate slowing.

At the end of December, the Strategic Bond fund’s top three holdings were Australian government bonds, totalling 8.7 per cent of the portfolio according to the product’s factsheet.

Mr Bezalel said: “Australian unemployment has ticked higher to the highest rate for 3-4 years. A Chinese slowdown will hit Australia’s economy, so we’re hedged to that as rates will fall.”

While he said emerging markets in general were “still best avoided”, the manager emphasised that his team would “keep a close eye” on the asset class and that he was “not that bearish”.

In the longer term, Mr Bezalel said he was backing UK, German and Swiss banks as part of a “multi-year credit improvement story”.

“We’re seeing banks deleveraging year after year and spreads are compressing,” he added.

The Jupiter Strategic Bond fund is top quartile in the IMA Sterling Strategic Bond sector in three and five years to February 18, according to FE Analytics.