The low growth, low yield environment has never presented a better opportunity for contrarian investors to execute more offbeat investment ideas.
Speaking to Citywire Selector, AA-rated Soso said he reduced the global macro fund's equity exposure in the wake of Donald Trump’s victory despite his strong growth agenda.
'We do not subscribe to the theory that if bond prices go down, then yields will increase forever and equities will continue to go up. We think there is a threshold where bond yields reach a certain level and then equities will become expensive, therefore making investors switch back to bonds.
'In the second half of November, following the election of Trump we reduced the equity portion of the fund from 30% down to 22%.'
Soso currently has 83% of his long book exposed to long-dated bonds and said the post-election collapse in the bond market it the perfect opportunity to increase bond exposure in the fund.
'We increased the bond portion and took profit from the equity side, which is quite contrarian. Most people have the view that you have to sell bonds and buy equities, I think in the long term, why not? But in the short term, we are more cautious.
'We prefer US bonds because we feel like expectations in the short and long end shifted. In particular, if you look at short-term interest rates in US dollars, they have already hit about 0.83%.'
Soso said the potential for a negative market surprise is much bigger in Europe compared to the US and emerging markets.
'When you look at the one-year yield in the US it's about 0.83, whereas in Germany it is still at -0.65, so the potential for a negative surprise is much bigger in Europe as the landscape of the region might be about to change.
'We already have around a 1.5% gap in interest rates which is quite large by historical standards, which is why we prefer US bonds. We do have some Italian bonds in the portfolio, but the main portion is US.'
Soso said, although bonds have moved on the upside, the market’s expectation of a Fed rate increase is still quite low.
'The Fed could increase rates by three times next year, which would not be outlandish as interest rates would still be very low,' he added.
The Bellevue BB Global Macro fund returned 18% in euro terms over the three years to the end of October 2016, in the global macro category. This compares with a sector average of 3% over the same time period.