Omar Gadsby is focusing on three fund selection pillars this year: being long and short developed markets; being long emerging markets; and investing in private market strategies.
On developed markets he is convinced you have to be active with both long and short positioning. ‘When I talk about going short, I mean active management of credit and interest rate risk,’ he says.
Gadsby is also targeting emerging market debt, where he says he could have been more aggressive in 2017.
‘We were concerned about the potential impact of central banks reducing monetary support, so we took a neutral view on emerging market debt last year.
‘However, we did manage to capture great returns in frontier markets and are now more constructive on local currency emerging market debt in particular, where we expect to see good results in 2018.’
Gadsby is also positive on China, especially as investors can now access its domestic market.
‘It is the third-largest bond market in the world and Goldman Sachs expects $250 billion of inflows over the next five years. There will be further opportunities if China enters global indices,’ he says.
Gadsby says the third potential source of returns for 2018 is private debt. He says there is very strong growth in the syndicated senior loans market as banks increased capital and reduced risk-weighted assets and lending following the European sovereign crisis in 2011.
‘We continue to expect strong growth in the sector and have already invested in some good solutions capturing European senior loans.
‘Also, the in-house fixed maturity senior loans fund that we launched in the first quarter of 2017 was a pleasant surprise.’
Gadsby and his team also have several private debt investments in the pipeline for 2018.
However, he sees some macroeconomic headwinds on the horizon too, as major central banks are gradually reducing their stimulus.
Positioning products in anticipation of central bank moves is a high priority on my agenda as a fixed income selector this year, as yield curves are likely to flatten further in the US and rise in Europe,’ he says.
Elsewhere, Gadsby says selectors will need to think hard about integrating passive products into particular parts of client portfolios in favour of actively managed funds.
‘Passive solutions are very competitive in specific sectors within high quality credit and in government bonds.
'ETFs are a good way to exercise yield curve positioning as these instruments are cheap and you can easily implement your view be it zero to three years segment, three to seven years segment or the long end of the curve,’ he says.
This article originally appeared in Citywire Selector's, Selector 100. For more articles click here.