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Selection chief: my top absolute return fund picks

Selection chief: my top absolute return fund picks

Following noise surrounding central bank movements and constant rhetoric on rates rises, one investment professional reveals his ideas on how best to play the fixed income market.

Selector: Juan Hernando

Company: Mora Asset Management

In the fixed income space, most of the market is aware of the risks from the rise in rates from central banks. At the moment we are looking at low duration funds.

We are currently invested in short duration, hard currency and emerging market debt, one fund we like here is the Loomis Sayles Short Term Emerging Markets Bond fund.

Another area we are currently focused on is the floating rate notes space. We like the sector as it can make a profit in a rising rates environment.

There are some great funds in this sector such as the Deutsche Floating Rate Notes fund. Obviously, we want to make a profit on the floaters, but we try to reduce the credit risk of them so we do not invest in high yield floater funds.

We are investing in hard currency to reduce currency risk and we are using short duration to counteract the risk of rate rises.

Absolute return

Something we have been doing for years is investing in the absolute return space. But the sector is complicated and it’s hard to find managers who are able to consistently return year after year.

Despite transparency in the space having improved, it’s complicated to understand what they are doing, managers can explain this to you but it’s sometimes difficult to work out their next steps.

Over the last month, we made a tactical position in subordinated debt with the GAM Star Credit Opportunities fund. We decided to make a gain in the sector and we finished the position.

The returns had been good and the spreads were lowering, it was a tactical position that we had made.

Another idea we had was to take a position in convertible bonds, we wanted a lower delta that would have a lower sensitivity to the equity market. We are conservative investors, even though we liked convertibles but wanted to play them in a safer way.

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