Inflation targets are proving problematic for investors across the globe, with the European Central Bank fighting hard to ensure against a deflationary spiral in the region.
While Mario Draghi begins to enact measures to help bring growth back to the eurozone, how have the fund managers fared?
Taking a closer look at the Euro Inflation Linked bond sector, there are currently 39 specialist fund managers operating in the sector.
Looking at the two-year period from September 2012 to September 2014, which encapsulates the first steps towards imposing monetary stimulus measures in the eurozone.
This charts back to the launch of the ECB’s Outright Monetary Transactions programme - one of the first major stimulus steps designed to ease the debt burden in the eurozone – up to the announcement of the Targeted LTRO plans and ABS purchases.
Over this timeframe, the average manager in the Euro Inflation Linked bond sector returned 4.42%, while the strongest performer, Jean-Paul Cheve of Camgestion, returned 18.49% in euro terms.
But who has ridden the ECB efforts the best and posted the strongest turnaround in performance? Let’s take a closer look at the leading lights in inflation-linked bonds over the past two years.
Harri Kojonen, OP-Pohjola-ryhma
Fund: OP-Reaalikorko A
- Ranking in first analysis period (September 2012-2013): 42/45
- Ranking in second analysis period (September 2013-2014): 20/39
Posting a rise of 22 places up the rankings between the two analysis periods is Harri Kojonen of Finnish asset management firm OP-Pohjola-ryhma.
Kojonen has been lead manager on the Finland-domiciled OP-Reaalikorko since it was launched in October 2006. The Citywire + rated manager currently has 77% of the fund invested in the bonds market, with 75% in AAA-rated inflation-linked debt. The fund is currently 22.7% exposed to money market funds.
At a country level, the top 10 holdings show a strong emphasis on the Nordic market, with Swedish and Danish debt featuring heavily. This is as well as off-benchmark allocations to sovereign debt from Australia, New Zealand and Canada.
Marion Le Morhedec, AXA IM
- Ranking in first analysis period (September 2012-2013): 35/42
- Ranking in second analysis period (September 2013-2014): 12/39
Joining Kojenen among the most improved is Citywire + rated manager Marion Le Morhedec of AXA IM. The Paris-based manager oversees two inflation-linked funds for the French group covering the European and global markets.
The €142 million AXA WF Euro Inflation Bonds fund currently has almost three-quarters of its assets invested in the French market. This is while having minor positions in Germany (13.9%) and Italy (10.2%), as well as less than 1% split between unspecific markets and cash holdings.
In the most recent fund update, Le Morhedec said recent outperformance had stemmed from an overweight position to the peripheral markets, as well as an allocation on nominal debt in shorter parts of the curve. Le Morhedec said the outlook is now more positive given the euro weakening seen since the end of May.
Yanick Loirat, BNP Paribas IP
- Ranking in first analysis period (September 2012-2013): 38/42
- Ranking in second analysis period (September 2013-2014): 7/39
Achieving the biggest turnaround in fortunes over this period is BNP Paribas IP manager Yanick Loirat, who has risen 31 places up the sector rankings while overseeing two inflation-linked bond funds.
On a two-year absolute return basis, Loirat has narrowly outperformed the average manager but, on a 12 month basis, he is among the top 10 performers in his sector.
Focusing on the Luxembourg-domiciled version of the fund, the PARVEST Bond Euro Inflation-Linked fund, Loirat has an underweight to the French market of around six percentage points. This is while having a minor overweight to both Italian and Spanish inflation-linked debt.
On a credit quality basis, the fund has an overweight to BBB-rated bonds, while the main emphasis in terms of maturity is towards the mid-term range. This is with 20% of the fund invested in bonds with a maturity of 5-7 years and a further 23% in those with 7-10 years.