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Leverage is not a dirty word, says boutique manager

Leverage is not a dirty word, says boutique manager

Cash is currently overvalued and it's more attractive for investors to look at adding leverage where possible to make use of this accommodative environment.

That is the view of global macro manager Lucio Soso, who runs the Bellevue F (Lux) BB Global Macro fund for Swiss firm Bellevue AM.

Speaking to Citywire Global, the Zurich-based manager said that, with interest rates in developed economies being held artificially low, it is prime time to take advantage.

‘Everyone complains about cash yielding zero percent but I think you have to look at it the other way around. When something is overvalued, such as cash at zero percent, then you can go short cash.’

‘How do you do this? You are effectively going short cash. Going short cash means you add leverage and leverage is nothing new,’ he said.

Soso said he has been putting this to work in his global macro fund, which has seen him add leverage in order to up gross exposure in the fund.

This, he said, has been particularly beneficial for an investor based in Europe as he is able to operate in the US market, for example, without having to pay to hedge out interest rate risk.

Buying up bonds

Therefore, he currently has 110-120% gross exposure to global bond markets as he believes there are cheap opportunities to capitalise on in fixed income.

‘People have been having leverage in their portfolios for a long time and leverage is dangerous, and now it is still dangerous but it is free,’ he said.

This first saw Soso increase exposure to Italian government bonds but he opted to move towards more German bunds and US treasuries towards the end of 2013.

‘That is quite counter-intuitive because you normally think, at this end of the cycle, bond yields tend to go up and so it was a highly contrarian trade.’

The Bellevue F (Lux) BB Global Macro B EUR fund has returned 5.5% over the three years to the end of December 2013. This compares to a return of 1.56% over the same period by the average manager in the Citywire Alt Ucits – Global Macro sector.

Lucio Soso is set to appear in the March 2014 edition of Citywire Global magazine in the Alternative Ucits section.

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