Citywire Selector - For Professional Investors

Register to get unlimited access to Citywire’s fund manager database. Registration is free and only takes a minute.

You simply need to have cash on hand, says €2.6bn bond veteran

You simply need to have cash on hand, says €2.6bn bond veteran

The lack of viable investments means absolute return bond managers should feel no guilt about tactically keeping cash back until better opportunities emerge, GAM’s Timothy Haywood has said.

The sector veteran, who runs the €2.66 billion GAM Absolute Return fund, told Citywire Selector his current 12.9% allocation to cash and cash equivalents is high, but for good reasons given market dynamics.

‘Cash arises from pauses between investments. But just because we have cash doesn’t mean we don’t have risk. We use derivatives which are cash collateralised. It looks like we have a lot of cash but we also have swaps and futures,’ he said.

‘So, yes we have cash because we need to have cash. Whilst it would be lovely if we got a better return on cash than we do with high quality banks because they don’t pay very much in the way of interest.’

Haywood said he wanted to avoid ‘lazily’ putting money to work in areas such as corporate bonds, where there are few compelling opportunities, while traditional sovereign debt offers increasingly limited appeal.

‘Generally we think developed market bonds are pretty expensive due to the level of absolute yields, which are pretty low and, in numerous cases, negative,’ he added.

‘The quantum of negative bonds has shrunk from $12 trillion at the peak to $7 trillion but that is still $7 trillion and if you have landed from Mars and wanted to make a long-term investment, it is hard to see that you that would start by buying those bonds.’

Haywood highlighted how the proliferation of central banks and ETFs indiscriminately buying debt had changed the shape of the market and made it tougher for active investors – especially those with absolute return mandates.

‘Buying patterns like this do, however, create an opportunity for momentum to kick in as a more important factor than you would expect for an asset class that doesn’t lend itself to momentum.

‘You are always going to get a set price back on a bond, never double that redemption price and only if there is a default will you get maybe less than half. Momentum therefore has started to matter and I think it has given us an opportunity. Anyone who can work out how clunky buyers are working create an opportunity to benefit.’

The GAM Multibond – Absolute Return fund returned 3.3% in euro terms over the 12 months to the end of June 2017. The average fund in the Alt Ucits – Bond Strategies sector returned 2.6% over the same timeframe.

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Events
  • Citywire Alternative Ucits Retreat 2017

    Citywire Alternative Ucits Retreat 2017

  • Citywire Milan 2017

    Citywire Milan 2017

  • Citywire Paris 2017

    Citywire Paris 2017

  • Citywire Deutschland 2017

    Citywire Deutschland 2017

  • Citywire DACH 2016

    Citywire DACH 2016

  • Citywire Italy 2016

    Citywire Italy 2016

  • Citywire Milan 2016

    Citywire Milan 2016

  • Citywire Alt Ucits 2016

    Citywire Alt Ucits 2016

  • Citywire Berlin 2016

    Citywire Berlin 2016

  • Citywire Switzerland 2016

    Citywire Switzerland 2016

  • Citywire Amsterdam 2016

    Citywire Amsterdam 2016

  • Citywire Montreux 2016

    Citywire Montreux 2016

  • Citywire Deutschland 2016

    Citywire Deutschland 2016

  • Citywire Latin America 2016

    Citywire Latin America 2016

  • Citywire Milan 2016

    Citywire Milan 2016

  • Citywire Munich 2016

    Citywire Munich 2016

  • Citywire Paris Alt Ucits 2016

    Citywire Paris Alt Ucits 2016

  • Citywire Zurich Alt Ucits 2016

    Citywire Zurich Alt Ucits 2016