Blockbuster bond manager Ariel Bezalel has turned his attentions to high quality sovereign debt as he seeks to protect his $12 billion fund against a looming deflationary environment.
In an investor note, Citywire + rated Bezalel said he now has 40.3% of the Jupiter JGF Dynamic Bond fund exposed to government bonds, most notably in 10- and 30-year US treasuries.
Bezalel has also reduced a long-held short position on German government bunds, which has impacted the overall duration make-up of the fund. It now sits at around four years, which is up from 3.17 in March.
Commenting on the changes, he said: ‘We expect it to be deflationary, with negative consequences for the economy. Risk-weighted assets that have benefited from quantitative easing are also likely to be affected.’
Bezalel added that an aging population, global over-indebtedness, and disruption from new technologies would keep interest rates low in the longer run, making high quality government bonds an attractive asset class.
In addition, Bezalel said central banks would now try to take back the proverbial ‘punch bowl of liquidity’. As a result, the quality of the portfolio has been increased and its high-yield weighting and beta has been reduced.
Bolstering bank bets
In addition to government bonds, Bezalel is focusing on banks, with European and British banks named as the top performers in its portfolio so far this year.
‘The reasons for this are numerous: pleasing business results, positive stress tests, ongoing restructuring processes, a positive sentiment regarding the recapitalization measures of Italian and Spanish banks, and the general market expectation that interest rates will rise in the medium term.’
The Jupiter JGF Dynamic Bond fund has achieved a value increase of 10.1% in euro over the past three years until the end of September 2017. The average in the Citywire sector Bonds Global Flexible achieved a value increase of 5.6% over the same period.