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The rising fund manager stars in European bonds

Who is on track for a Citywire fund manager rating in this core fixed income sector? We identify the managers who have posted the best one-year risk-adjusted returns.

Fuelled by massive government interventions and expansive monetary policies, European credit markets showed a strong recovery last year, making 2009 an annus mirabilis for many bond funds.

We filtered our universe of fund managers in the European bond sector to find those with the strongest information ratios over one year, but who do not yet have long enough track records to qualify for a Citywire record.


With five of our rising stars ranked in the top ten of European bond managers over the one-year period, conditions offered many newcomers a chance to shine.

Derek Hynes, managing the European Credit Fund Sicav – Danube sub-fund for London-based ECM – has been able to benefit from the recovery more than any of his peers.

With a total return of 87% over the last year, he tops the Citywire sector rankings for total returns. He explains last year’s success with a very strong recovery in the credit markets and the flexibility of his investment approach, which allowed him to seek out the best relative value opportunities.

‘Last year we were heavily overweight in the most stressed asset classes: high yield, bank capital and exposure to asset-backed securities. Credit markets benefited greatly from the loose fiscal and monetary policies globally, which led to extremely low policy rates and helped pull the global economy out of recession,’ he says.

Hynes is confident that these asset classes will keep performing well in the immediate future. The fund seeks a core of investment grade corporate bonds and has an average rating of BBB.

An interesting feature of the fund is the complete focus on credit spreads to produce alpha. ‘We do not take interest rate or exchange rate risk within the fund investments, and hedge such market risks using swaps and FX forwards,’ he explains.

‘This allows us to be 100% credit focused, which differentiates us from the other managers who at this moment in time also have to consider the direct risks of a rising-rate environment impacting fixed income returns. This is particularly important when we consider how preoccupied the market is around fiscal deficits, excessive government supply and sovereign risk.’

In emerging Europe, Hynes biases allocation to government or quasi-sovereign entities such as Gazprom, Lukoil or the Russian Agricultural Bank, linked to key strategic assets in the country.

He is, however, worried about the Eurozone’s periphery, predicting that Greece is not out of the woods. ‘Near term it looks as if liquidity risks have been removed for Greece, but this does not remove the solvency risk further down the road, which is likely to hang over the credit for years to come.’

The spectre of a Greek default seems to haunt managers, notwithstanding the recent rescue loans. ‘Greece is not in our portfolio – we are not tempted by the high yield,’ said Andreas Auer. His Gutmann Anleihen Opportunitätenfonds realised a one-year information  ratio of 3.99, making him a likely candidate for a future Citywire rating. The fund of funds, which he calls ‘rather racy’, invests globally, but has a strong focus on Eastern Europe.

He takes a cautious view on the region. ‘Poland and Hungary seem very solid, but it is hard to know what will happen if you cannot trust the numbers.’ His largest fund holdings are the Templeton Global Return fund, the Invesco Emerging Markets BF C, the ESPA Bond Danubia and the Raiffeisen Osteuropa Rent.

Another rising star and the manager with the best risk-adjusted performance in the sector is David Simner. His Fidelity Funds MoneyBuilder European Bond fund invests primarily in fixed income securities and aims to add value from many small uncorrelated positions.

Last but not least, Pioneer’s Hakem Saidi appears on our list of rising stars. His Pioneer Funds Euro Convergence bond fund has its largest holdings in Polish government bonds, Société Générale and DEPFA bank bonds.

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