David Roberts, who joined Liontrust at the start of January, has revealed why he walked away from the billions of bond assets he jointly managed at Kames to start again at a rival.
The fund manager and his colleague Phil Milburn together managed six bond funds and were co-heads of the fixed income desk at the firm, before Mr Roberts announced his departure in August 2017 after more than a decade at the company.
In contrast to Kames, Liontrust is better known for its equity investing.
Mr Roberts said: “Psychologically I am a builder and a creator, rather than a manager and a completer.
"Three times in my career I have built up a bond franchise and Liontrust is to be my fourth time."
Mr Roberts started in the industry at a firm called Britannia Asset Management, which later became part of Ignis, and then Standard Life.
"Britannia] had no bond assets when I started, but we built it into a multi-billion pound operation.
"I was then approached by Aegon, which later became Kames, to do the same thing for them. The funds I took over had very little in the way of assets, and we built them up.
"The third time was when we saw that we had reached saturation point in the UK point in the UK with Kames products, so launched funds in Europe, through a Dublin registration.”
Mr Roberts has applied to regulators in both the UK and the Republic of Ireland to launch new bond mandates at Liontrust.
As well as enjoying the challenge of starting from scratch, he said there was another reason for his exit.
“At Kames, I was managing a lot of people and sat on the six person executive committee that ran the whole business, that was increasingly taking me away from the stuff I really enjoy, which is looking at markets, making investments and talking to clients,” he said.
Mr Roberts formally joined Liontrust in mid-January. He said the recent gyrations in the bond market are a traditional signal that a recession is imminent within a year, but he feels this time it could be different.
He said a feature of the bond market since mid-December has been the sell-off in bonds with a short duration to maturity, which means the bond yield curve has become less steep.
The bond market yield curve in a healthy economy and market slopes solidly upwards from left to right, with the points of the axis being the length of time until the bond reaches maturity, and the interest rate on a bond.
A bond with a short date to maturity should have a lower interest rate, because there is less risk of rates rising, or the economic outlook changing in the short time until the investor has their capital returned.
Bonds with a longer date to maturity have a higher interest rate because the investor is bearing a greater risk that inflation, interest rates or economic conditions could change prior to their receiving a return on investment.
Since mid-December the bottom left of the curve - short-dated bonds - has been rising, that is, the interest rate on bonds with a short duration until maturity has been rising because investors have been selling those bonds.
This means the left-to-right line of the bond yield curve has become straighter. A movement like this, according to Mr Roberts, has preceded every global recession since 1942.
This is because investors sell bonds with a short date to maturity because they are worried about the short-term outlook for the economy.
Mr Roberts said the market has been worried that higher inflation in the US would prompt the Federal Reserve to put interest rates up much quicker than expected, which would lead to a slowdown in economic growth, and a recession within six to nine months.
But he feels such a scenario won’t happen this time, because, alongside higher interest rates, which slows down the pace of growth, the recent tax cuts of Donald Trump will have sufficiently stimulative effect on the US economy to push the threat of a recession further into the future.
Those actions in the bond market have pushed the yields higher on all bonds, provoking a sell-off in equity markets.
Jason Hollands, managing director at Tilney Group, said the hiring of Mr Roberts and Mr Milburn is a “real coup” for Liontrust.
David.Thorpe@ft.com
