Fixed Income  

OMGI’s Cowley admits to sterling prediction mistakes

Stewart Cowley has admitted making mistakes in failing to predict the strength of sterling and the impact of the weather on the US economy, calls that have led to a performance lull.

The manager’s bet that US government bond yields would rise has detracted recently, leading Charles Stanley Direct to jettison his £760.7m Old Mutual Global Strategic Bond fund from its recommended fund list.

Data from FE Analytics shows the unhedged version of the Global Strategic Bond fund has dropped into the bottom quartile for performance in IMA Global Bonds in the past year, losing investors 7.8 per cent as the manager’s short position on US government bonds backfired as yields fell.

Article continues after advert

Last week US 10-year government bond yields plunged by more than 20 basis points, to below 2.5 per cent. The fund has also suffered from having 30 per cent of its holdings denominated in dollars, which has hurt performance as sterling has appreciated by more than 10 per cent against the US currency since Mark Carney became governor of the Bank of England. He said: “That has been a shocker and has caught global macro players, such as myself, on the hop.”

But Mr Cowley insisted all the evidence pointed to improving US growth, which meant a bond yield of 4 per cent was more “appropriate” and the dollar should strengthen. He claimed the “evidence is with us but the market is not”. He said that because investors cannot predict when the US Federal Reserve will raise rates, they are “overreacting” to short-term noise.

Ben Yearsley, head of investment research at Charles Stanley Direct, said he was dropping it because “the past few months have highlighted the risks of the manager’s strategy being at odds with market sentiment, and although it may be the right one for the long term it could be some time before it comes to fruition”.