And so Mike Riddell bids farewell to Allianz Strategic Bond, the fund he had run for nearly a decade and has gone to run Fidelity's strategic bond fund.
The line from the company is that he is leaving "to pursue an opportunity outside of Allianz Global Investors". No link is being drawn between Riddell's departure and the fund's pretty terrible performance in recent years.
In two of the past three years, Allianz Strategic Bond was the absolute worst performer in its sector. Year to date, it is claiming that unwanted crown again.
As we have covered in the past, Riddell made a big bet on duration: his fund was comfortably the longest duration strategic bond fund in our database at more than 10 years.
We spoke to Riddell in early 2023 and he was in a bullish mood, believing that the collapse of Silicon Valley Bank was about to prove his thesis about government bond yields right.
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.”
But ultimately things didn't improve and this led to some of the allocators who held his fund selling up. As of today, four remain compared to six when we spoke to Riddell in 2023.
Since May 2021 the fund has shrivelled from £3.2bn in size to £925mn - though most of that is poor performance, with only £700m of net outflows in 2022 and 2023 combined.
So what's next? From June, the funds Riddell ran will be managed by Allianz’s global markets team, led by Julian Le Beron, chief investment officer for core fixed income, to whom Riddell reported.
Riddell will run the £370m Fidelity Strategic Bond fund which is held by none of the allocators in our database.
CJ Cowan, portfolio manager on the Quilter Cirilium range which holds the fund, said the team would review the change before deciding whether to sell or hold.
He said: "We have always been aware of Mike’s positioning - for the past couple of years the fund has been long duration and short credit. Clearly neither of these were the 'right' trades for the market environment, but we think about each of our holdings in the context of the broader portfolio and believe the fund offers diversification versus other holdings. The nature of running a diversified portfolio is that you do not expect all holdings to perform well at the same time."
We also caught up with James Yardley, research analyst at Chelsea which held the fund in its managed funds, about today's news.
He said: "It's been a disappointing investment for us. Mike did fantastically well during Covid but has got his duration call since then spectacularly wrong. To be fair he has not been alone and many strategic bond managers have made the same mistake. As a group it has been disappointing how few have protected their investors' capital during the rise in rates and inflation.
"We like Mike. He was articulate and communicated his strategy and positioning very clearly but he has made one very big mistake. As investors we all knew the bet Mike was making and must share some of the blame. In our cautious fund we used this strategy as a risk-off hedge with its long duration position in government bonds and willingness to short credit made it the perfect hedge against recession risk. Where I think we are a bit disappointed is the extent of the drawdown the fund has suffered. The fund was originally sold to us as something which should be boring and tread sideways for long periods with the occasional big win. In practice it has been much more volatile.
"It's not just the duration which has hurt Mike but also the tightness of credit spreads. I wouldn't be surprised if we look back at this moment and say that was the peak for spread tightening and the top for government bond yields. We saw something similar when Alistair Mundy exited the industry. He'd been talking about value and inflation for 20 years and it all started almost the day after he left."
As to whether Chelsea will continue holding the fund? A decision has not yet been made but the firm says it supports Allianz as a fund house.
