Bezalel shorts US high yield for first time

Mr Bezalel, who has been vocal about his concerns over US high yield in the past year, said he had initiated a short position because of weak fundamentals and approaching headwinds such as the renewed decline in the oil price.

Year to date, the Bank of America Merrill Lynch US High Yield index has risen 23.8 per cent, with a significant uptick occurring since late June.

The manager thought this movement could be misleading, not least because the price of crude oil re-entered a bear market at the end of July.

“US high yield has rallied and that’s not reflecting poor fundamentals. In the US, the fundamentals look shaky in [both] investment-grade and high-yield companies,” said Mr Bezalel, who now runs £7.5bn across the onshore and offshore versions of his strategy.

US debt with a credit rating of CCC – the lowest-rated part of the market, and a category into which many energy companies’ issuance falls – has produced returns well in excess of any other part of the market this year, according to research provider CreditSights.

CCC-rated debt fell by 16.2 per cent last year, but had bounced by more than 19 per cent this year as of July 31, helped by oil’s rally at the start of 2016 and seemingly unruffled by crude’s more recent decline.

Mr Bezalel said: “Leverage has been climbing. There are worries about the way the oil price has been trading down. Also there’s a real chance that September is a live meeting in terms of the Fed raising rates.”

Other bond managers appear less convinced. In a blogpost published on August 9, TwentyFour Asset Management managing partner Mark Holman noted US high yield was one of the few fixed income markets still offering both yield and liquidity.

“US HY, despite accounting for just 4 per cent of the [fixed income universe], accounts for 18 per cent of the world’s yield,” Mr Holman said.

Jupiter’s Bezalel first slashed his high-yield weighting last October, pointing to “mounting evidence” of a reversal in the US credit cycle.

A barbell approach has seen him seek top picks in European high yield, offset by high-quality, investment-grade credits and a “material” position in high-quality sovereign bonds.

Although Mr Bezalel maintains his preference for European credit, he is wary of certain industries, most notably the troubled banking sector.

While the manager added to preferred, “well-capitalised” UK holdings such as Lloyds and Coventry Building Society following the EU referendum result, fresh signs of turmoil in the Italian banking sector have reinforced his cautious outlook.

“Our banking exposure is probably the lowest it has been for quite a few years, with the Italian banks having to find a solution [to their non-performing loans],” he said.

Mr Bezalel expects further issuance of sovereign bonds in the coming years as the likes of the US and the UK turn to fiscal stimulus to appease populist sentiment.

He has also cut duration in the fund from around six to 4.5 years.

“We see governments trying to reflate economies. I think economic growth will remain sluggish, so we are happy to keep government bonds, but we have reduced duration,” he said.

The Jupiter Strategic Bond fund has returned 16.2 per cent over three years, compared with the average of 14.5 per cent by its peer group, the IA Sterling Strategic Bond sector, data from FE Analytics shows.

Oil price slump

The WTI crude oil price rebounded 38 per cent in the year to date to June 8, but a renewed decline has seen it fall back 23 per cent since