The past five years have not been easy for Global Income managers. The Citi World Government Bond index is down 0.8% over that time, but this figure only tells half the story of what has been an extremely bumpy ride, full of peaks and troughs.
The period included the ‘taper tantrum’ of 2013, the end of quantitative easing in 2014 and the election of president Trump in 2016 – which resulted in the worst quarter for investment grade debt since 1981.
Yet there are scores of individuals who have managed to prosper in this inhospitable climate. In fact, the average manager in the peer group made an impressive 11.2% over that time.
The path less trodden
This reflects the growing trend of managers in this new fixed income paradigm investing in the less well-trodden parts of the market in an effort to find yield.
Although there is a huge disparity between the five-year average and the index, it is a much closer-run affair over the past three years, with the index down 2% and the average up 3%. This is a direct consequence of the savage fourth-quarter rotation in 2016.
Nevertheless, there have been winners. The table below is sorted by three-year risk-adjusted returns, and it is the team from JPMorgan led by Bob Michele in New York and supported by Nick Gartside and Iain Stealey in London who sit at the top.
They have returned an impressive 11.5% on their JPMorgan Global Bond Opportunities fund.
The strategy is one of the new breed of flexible portfolios and has benefited from a large exposure to high yield with close to 45% of the fund allocated to BB credit or lower. Their decision to hedge almost the entire portfolio (92.4%) back into dollars has also been a major win in this period of greenback strength.
That’s not to say it isn’t an international portfolio, with close to 60% invested outside of the US. However, there is no one standout country occupying a large chunk of the portfolio – the next highest is the UK at 4.3%. There is also a leaning towards emerging market debt, which has had such a strong run this year and occupies 20% of the portfolio.
The portfolio, another flexible mandate, has slightly less in high yield with around 35% in lower quality issuers.
Where they deviate more significantly is in their allocation to asset-backed and commercial-mortgage-backed securities, which occupy 16.3% and 5.9% respectively compared with the single-digit allocations found in the JPMorgan portfolio.
They have a much more modest 20% allocation to high yield, instead favoring higher-quality government and corporate issues. They also currently have over double the peer group average allocation to long-term debt maturing in 20 or more years’ time.
Top 10 Global Income managers by three-year manager ratios
*The manager ratio is the average information ratio of the funds the manager has run in this sector over the past three years. A positive figure means they have beaten the benchmark.