J O Hambro Investment Management (JOHIM) fund manager says there is a on a renewed flight to quality for core government bonds by institutional investors, as bond funds deliver ample returns.
“During the month, financial bonds benefited from strong profit numbers and a perceived decline in Eurozone risk,” , says Jeff Keen, fund manager at Waverton Global Bond Fund at JOHIM. “Within this sector, subordinated bonds outperformed seniors with robust earnings giving further assurance that bonds will be redeemed on their first call dates. The Fund has around 18% exposure to these types of instruments in our favoured names. The Waverton Global Bond Fund returned 1.59% during February, outperforming the Citigroup World Government Bond index by 1.2%.”
J O Hambro Investment Management (JOHIM) is a specialist investment management firm founded in 1986 by the Hambro Family. For the first fourteen years, the share capital of the firm was owned by the Hambro Family and the management of JOHIM. In 2001 the company was acquired by the Credit Suisse Group, although JOHIM remains a separately managed entity from other divisions within Credit Suisse private banking. As at 31 December 2010 assets under management were in excess of 3.5 billion.
“The first half of the month saw 10 year Treasury yields move sharply higher, peaking at around 3.75%, as the market reacted to strong economic data and the lack of a credible debt reduction plan by the US Government,” says Keen. “However rising Middle East tensions spurred a renewed flight to quality to core government bonds as markets grew concerned about a sustained high level of oil prices potentially derailing the recovery. The rally was led by the longer-end of the Government curve and saw the Fund benefit from its increased exposure to 30 yr Treasuries (15% weighting) which was opened to exploit the steep curve and act as a partial hedge to our credit bias.”
Whilst JOHIM has historically specialised in managing discretionary equity, cash and fixed income private client portfolios, they are also investment manager to a range of regulated onshore and offshore equity funds available under the Waverton banner as well as two equity long/short funds (the Pepin and Tai Chi funds). The Waverton funds, introduced in 2004, are structured to offer discretionary investor groups including fund of funds managers, private client stockbrokers, discretionary and advisory wealthmanagers and family offices, access to the firms established regional and global equity investment expertise.
“Currency gains contributed around half of the Funds monthly return with the largest contributors coming from the Norwegian Krona and Canadian Dollar which have strengthened due to their status as oil-producing nations amidst Middle Eastern unrest. Interestingly the US Dollar did not see much support from safe haven flows as in other times of stress,” says Keen.
“We continue to be comfortable with our view that economic recovery will lead to the normalisation of monetary policy and risk appetite, pushing yields higher and credit spreads tighter, he adds.