Convertible bond manager Damien Regnier has started trimming his Japanese holdings after the onset of Abenomics boosted the performance of his long-held stakes in the region.
Regnier, who co-runs the €1.2 billion DWS Invest Convertibles fund with Christian Hille, said he had made significant allocations to the Japanese markets following the 2011 tsunami and earthquake as many investors viewed it as ‘off the radar’.
‘Six months after the earthquake I started looking at the GDP figures, how it was changing, and some of the companies which had a presence in the convertibles market,’ Regnier told Citywire Global.
‘A lot of the companies with converts were not based in the affected areas and, in some cases, not in industries at all impacted. Some of these companies were more exposed to China than what was going on in Japan, or some were in very defensive sectors such as hygiene products.’
Regnier said, while the Japanese convertibles market is relatively small, he began adding to allocations after March 2011. This saw him increase from 6.25% in June 2011 to 10.9% one year later.
This long-term stance, Regnier said, meant he was well positioned with regards to the underlying equity when newly re-elected Prime Minister Shinzo Abe began his aggressive monetary stimulus programme at the start of the year.
‘I selected balanced profiles with about 30-60% equity sensitivity and solid bond floors and then they moved very strongly as the equity market improved thanks to the supportive stance of Kuroda-san at the BOJ and the impact of Abenomics.’
‘As the invested convertibles profiles became more equity-like, I started trimming slowly the exposure looking at the fundamental value while using the yen as a trigger, so when it went to 96 I would reduce and the same above 98.’
Regnier said the performance of the Japanese aspect of the fund, which accounted for 10.1% of his allocation according to the latest available data, has helped drive recent performance, which has suffered slightly over the longer term.
On a three years basis, the DWS Invest Convertibles fund has returned 11.9% while the average manager in the Lipper Global Convertibles sector has returned 13.85%.
Looking at where to reallocate this cash, Regnier said he is probably set to increase his exposure to the US market. However, he said the volatile markets mean he will be adding more defensive names to reflect the ‘vanilla nature’ of the fund.
‘We will probably have a short term allocation to US large caps and look at where we can play the bond convexity, as that is a main feature of the fund,’ Regnier said.