Silicon Valley Bank's collapse has hardly left the headlines despite the Budget yesterday (March 15).
Amid all the furore, Asset Allocator happened to have a chat with Mike Riddell in the wake of the SVB collapse.
Riddell runs one of the most popular strategic bond funds among DFMs, Allianz Strategic Bond, which is owned by six DFMs in our database.
Of the most popular strategic bond funds, it is also the one with the longest duration at more than 10 years.
Regular readers may remember that, in the second half of last year we wrote about the concerns some DFMs had about strategic bond funds being too long on duration for a world where rates are rising rapidly.
Riddell has not changed his fund’s position on duration since then and he says the events of the past few days prove he was right - eventually.
He said: “My view has been for a while that government bonds are attractive because they cannot hike rates too high and they cannot stay too high forever. Something has to break. It was the same thing with LDI [after the “mini” Budget].
“The Fed and other central banks want to keep hiking rates until something breaks and something has clearly now broken.”
Riddell started adding duration in the second quarter of 2022 and he acknowledged he was probably “too early” in doing this.
But he says government bond yields will now have to fall which means that, as a fund manager with a longer duration, he stands to benefit.
We re-ran the data and it appears a very clear divide is emerging with three funds which are going long - the other two being Jupiter Strategic Bond and Janus Henderson Strategic Bond.
Indeed the managers of the Jupiter and Janus Henderson funds both appear to have increased their already long durations even further since we last looked into this.
Meanwhile the other funds are keeping it short - indeed Nomura Global Dynamic Bond appears to have cut its duration.
Whether this divide continues to emerge, and what DFMs think about it, will be something we keep an eye on, as the fall-out from SVB continues.
david.thorpe@ft.com
