In a world of low interest rates and decidedly low government bond yields, for some the outlook for fixed income appears bleak. But according to Nick Gartside, international chief investment officer for fixed income at JPMorgan Asset Management (JPMAM), there’s life in the old dog yet.
He adds: “There is a very long-run rotation into bonds. I think it goes back to that broader demographic factor of people living longer and able to afford to take less risk with their savings. The clue is in the name fixed income. Its clearly good at providing an income.”
While he is optimistic about the future for the asset class, he reveals it took him a while to find his calling.
He says: “I’d always been interested in markets and when I started work I realised there was more to markets than just equities – and learnt more about bond markets. It’s only once you get into markets you realise that equity markets aren’t actually the most important and aren’t the biggest.”
While fixed income globally is now a force to be reckoned with, Mr Gartside points out: “No one wanted to be a bond manager when I started. They thought they were funny little things that no one understood or, indeed, cared about.”
As a graduate trainee at Mercury Asset Management, his first rotation was in emerging market equities, “which I really didn’t like,” he adds.
Finding the focus as an equity manager to be very narrow, he recalls: “I did think I’d made a mistake. But I remember the HR person said you should chat to the bond team, which I did with some reluctance.
“[But] then I just thought bonds were amazing. If you think about the drivers of bonds, it’s much more interesting things. It’s the interplay between general economics and politics: the kind of things you’d read in many newspapers will move bond markets and have an implication on growth and inflation. I thought that was just significantly more interesting than looking at a very narrow part of the [equity] market.”
During his five years in the bond team at Mercury, Mr Gartside experienced the first of many changes in the fixed income market.
He says: “You saw the development of corporate bonds in Europe, which are now very commonplace, but weren’t before. The role broadened from doing just government bonds to doing aggregate bonds. Then at Schroders there was the opportunity to broaden that role and do global fixed income markets.”
Mr Gartside joined JPMAM in 2010 in the wake of the financial crisis and credit crunch, with the manager highlighting the latter as one of the biggest challenges of recent years.
“Bond markets were at the heart of that, as ultimately it was a situation where the build-up of debt got too big. And bits of the bond market got too big, and bits of the bond market got too complacent,” he says.
As a result he suggests the crisis reinforced the idea that bond investors are money lenders. “Whereas equity investors are investing for a share of future profits, a bond investor is lending someone’s money, so you have to look at that investment very differently and focus on the ability of that entity to repay you.”