Citywire A-rated Ariel Bezalel has shorted German bunds as the global economic outlook is improving and China is starting to recover.
Speaking to Citywire Selector’s sister site Citywire Italia, the manager of the Jupiter JGF Dynamic Bond fund said he made the moves as he believes inflation will start to rise.
‘We started to short German bunds and today it’s quite a significant position in the fund. The reason is the outlook for European economy, global inflation starting to pick up, as China last week announced a positive PPI, meaning that they will start to export inflation.’
‘The result is rising oil prices, tighter labour market in America and the ECB has really disappointed by not announcing an extension to the QE programme. I think they will start to taper, early next year, and the bond market is pricing this in,’ he said.
Bezalel currently has 33.1% of the fund devoted to government bonds and a 19.9% holding in Europe excluding the UK. He added that improving yields could signal a shift in the market.
‘If you look at government bond yields, they have started going up, which is a sign of quite a good sell-off. It could be the beginning of something more severe in the next few months,’ Bezalel said.
Other changes to the fund include reducing his exposure to investment grade bonds, as Bezalel said they have low yields and are sensitive to movements in government bonds.
At a regional level, Bezalel has 23.7% of the fund allocated to Asia Pacific excluding Japan and has increased his exposure to India.
‘We bought Indian government bonds and Indian corporates and we’ve put money to work in European high yield, because fundamentals are much better than US credit. We’ve also started buying Argentinian debt, which has a very good outlook,’ Bezalel said.
‘India has fantastic demographics, inflation has been trending lower, the yields on government bonds are around 7%, and you can get a further 50 to 100 bps by lending to utilities and banks. So I feel a lot more comfortable lending to this kind of institution rather than trying to be a hero and guess where government bonds will go in the next few years.’
The Jupiter JGF Dynamic Bond L USD Q Inc HSC returned 20.5% in US dollar terms over the three years to the end of September 2016. This compares with a 2.4% loss by the average manager in the Bonds – Global sector over the same timeframe.