“As Rate Volatililty Might Prevail this Year, We’d Have a Propensity to Favour Credit Risk”

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"Dada la volatilidad en los tipos de interés, tendemos a favorecer el riesgo de crédito: ratings más bajos con menor riesgo de duración"
Pixabay CC0 Public DomainPhilippe Berthelot, courtesy photo. "As Rate Volatililty Might Prevail this Year, We’d Have a Propensity to Favour Credit Risk"

With the rates normalization process already underway, Philippe Berthelot, Head of Credit Management Teams (Corporate and structured credits) at Natixis Asset Management talks in an exclusive interview with Funds society about where he sees value and highlights two of their funds: Natixis Euro Short Term Credit y Natixis Short Term Global High Income.

– Is it possible to talk about danger when we talk about the current situation in fixed income? Are the investors in danger when they take in account the arrival of the growth, the inflation, and the following rise in interest rates?

A rising rate environment may not be that supportive indeed for fixed income products in general, as it can lead to some disappointing performances. That said, 2017 is totally different from a 1994 scenario, we just expect 10 year rates to be 30-40bp higher by ear end in the USA and in Europe!

– Which are your previsions of the interest rate hikes in USA this year and how will this affect to the assets? There will be contagion in Europe? Will the ECB need to take solutions soon?

The FED is expected to raise rates 3 times this year (a hike of 25 bp already made yesterday) but really nothing to worry on the ECB side. What would matter the most in Europe would be hints at “tapering:” it is likely to occur next year. For the time being, political risk is a driver of sentiment with Dutch / French and German elections

– Is there danger of capital turnover from fixed income to equity?

It is genuinely true that a rise of nominal rates, at first, is supportive for risky asset classes like equities and even  credit. With further  growth prospects in Euroland this year Equities should outperform Fixed Income,  caeteris paribus.

– In this environment, is it still a good asset to invest or should we sharpen the caution at the time to invest in debt? Is it still possible to find value in credit, for example?

There are so many different animals within what is labelled “fixed-income” ! For instance, the bulk of ABS and senior secured loans are made floating-rate products, as such they’re not very sensitive to a rise of interest rates ! HY spreads are also negatively correlated to rates, which means that sub investment grade bonds should fare quite well this year. Last but not least, focusing on short duration investments is another way of performing almost  always  positively  whatever the state of nature.

– In which sectors of fixed income are we still finding value? And where do we find the biggest risks?

Financials and subordinated financials are very cheap vs corporates (as they are not eligible to the ECB QE). High beta sector like AT1 , Hybrid securities should perform quite well  this year.

– Do you prefer credit risk or duration risk? Why? It seems that now the most popular choice is to maintain a low duration… why?

As rate volatililty might prevail this year, we’d have a propensity to favour credit risk : lower in ratings with shorter duration risk

– Natixis Euro Short Term Credit y Natixis Short Term Global High Income are two solutions that are driving. What characteristics have these vehicles and what can they contribute to the portfolios?

Natixis Euro Short Term Credit is a core plus fund : mainly IG plus  a HY tilt than can up to 15% of its assets. In order to benefit from a  better  yield we also have a substantial exposure on subordinated financials. On top of it the fund duration is below 2 years, which is exhibits limited sensitivity to a rate rising environment.

The second fund, Natixis Short Term Global High Income,  is also targeting fixed income investments with  duration to worst below 2 years within the HY space this time with an average exposure to 50% Europe and 50% US. It features a much higher yield due do its very HY nature.

– Where can we find the best opportunities in credit: Europe or USA? What do you prefer; high yield or investment grade?

The answer is threefold: credit quality is much better in Europe with lower default rates and lower leverage, US fixed income will likely be hurt by a rising rate cycle , but carry is much  better off in the USA (assuming no dollar  hedge from an Euro  investor point of view)

– Do you like the profitability risk profile that the debt and emerging credit present?

We do have very little exposure but hard currency corporate exposure in some specific names. There is a another  team to deal with local currency in Emerging credit exposure.

-What returns can be expected on credit and with short durations facing this year?

You may expect the current carry with limited capital gains : 0.8% to 1.0% in Euro IG and ca 3% to 4% for Global HY short duration.

– Does the fact of taking short duration limit the returns?

It provides the best sharpe ratio in general, with the highest carry per unit of risk. It limits draw-downs to the detriment of lower expected returns.

“A Rate Hike by the ECB May Not Occur Until Later in 2018 at the Earliest”

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"La subida de tipos por parte del BCE no tendrá lugar hasta finales de 2018, como muy pronto"
Pixabay CC0 Public DomainJim Caron, portfolio manager and senior member on the Morgan Stanley Investment Management Global Fixed Income team . "A Rate Hike by the ECB May Not Occur Until Later in 2018 at the Earliest"

The primary risk to fixed income is a sudden and sustainable rise in interest rates. The conditions for this to occur is for the market to believe both domestic and global growth will be on a sustainable trend higher and that inflation will rise. However, according to Jim Caron, portfolio manager and senior member on the Morgan Stanley Investment Management Global Fixed Income team, there is little evidence that such a robust and sustainable event will actually occur. In his interview with Funds society he mentions that “We believe growth and inflation conditions are on the rise, but at a modest pace, not quickly. The key for fixed income investors is to create a durable portfolio that is actively managed. This provides one the ability to construct a portfolio with assets that are less sensitive to interest rates, such as credit related products, and provides the opportunity for the fund manager to manage duration risks. If done properly, bond funds can still produce positive excess returns even as rates rise.”

What are your expectations of rate hikes in the US this year and how will it affect the assets? Will there be contagion in Europe and will the ECB soon have to take solutions?

We believe the Fed will hike rates two times this year, with the risk being they hike three times. As we see it, the Fed will proceed cautiously as there are still many unknowns with US resect to fiscal policy, political risk events in Europe and economic risks surrounding trade and China. The ECB faces the same challenges but is further behind in the post crisis recovery cycle than the US. A rate hike by the ECB may not occur until later in 2018 at the earliest.

Is there a danger of capital turnover from fixed income to equity?

We recognize that there are other risks to fixed income in terms of capital flows. Many are over invested in fixed income and under invested in equities. If economic conditions convincingly improve, then investors may reallocate away from bonds into equities. This is a risk. However, if bond yields rise enough, it could slow the economy and this would re-attract investors to fixed income. So, there are limitations to how high and how fast bond yields can rise in the current environment.

In this environment, is it still a good asset to invest in or should we exacerbate caution when investing in debt? Is it still possible to find value, for example by assuming a global and flexible fixed income perspective?

Fixed income will continue to be a large part of a balanced portfolio. Yes, we believe there are still opportunities in fixed income, but it needs to be managed differently. We believe flexible and active management is essential. A flexible strategy should perform better than a passive strategy because the bond manager can allocate risk away from sectors of the bond market with the most sensitivity to rising rates and into other sectors that are less sensitive to rising rates.

In which fixed income areas still you find value? Where is there more risk?

We believe there are certain ‘winning characteristics’ for fixed income assets in the current environment: 1) assets with improving fundamentals, 2) attractive yield and carry, 3) positive idiosyncratic factors such as valuation and supply an demand technicals and 4) assets with more credit sensitivity rather than interest rate sensitivity.

Do you prefer credit risk or duration risk? why?

The assets we think will perform best are: 1) US non-agency mortgages – these assets benefit from improving fundamentals and have positive supply and demand technicals in addition to having good carry and more credit rather than interest rate sensitivity. 2) Emerging markets: we like commodity exporters both in external and local EM. For local EM we also select countries whose fundamentals are improving, have attractive yields and undervalued currencies. 3) Middle market high yield: these are companies with less than $1Bn of debt outstanding whose performance is driven more by idiosyncratic credit factors rather than interest rates. Sectors we like are Manufacturing, exploration and production energy and food and beverage sectors. We believe high quality sovereign bonds, which are most rate sensitive will perform worst.

European peripheral debt: are there still opportunities in markets such as Spain?

We think European peripheral bond markets are risky and we hold minimal exposure. The risk stems from political uncertainty. However, once the election cycles pass across Europe, we do see value in owning peripheral bonds. However, we think they will first cheapen over the next several months.

What returns can be expected from assets facing this year?

Bond market returns will vary across asset class and strategy. In our unconstrained and actively managed fund, Global Fixed Income Opportunities, we think we can achieve a 5-6% return. Our asset selection and weightings are skewed to less interest rate sensitive products such as non agency mortgages, EM and high yield. In addition, we are underweight duration and for additional protection against a rise in yields.

Pioneer Investments Sponsored the All-Star Tennis Charity Event in Miami

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Pioneer Investments patrocina eventos benéficos de tenis en Miami
Pixabay CC0 Public DomainFoto y video cedidos. Pioneer Investments Sponsored the All-Star Tennis Charity Event in Miami

Pioneer Investments’ U.S. Offshore Miami office had a fun and busy month in March in sponsoring two high profile tennis events locally.

While the Miami Open tournament provided an exclusive atmosphere to spend quality time with key clients, the Pros in town also provided a unique opportunity to give back to the community. 

For the 2nd year, Pioneer Investments is a proud sponsor of the All-Star Tennis Charity Event in partnership with Cliff Drysdale Tennis and the Ritz Carlton, Key Biscayne to benefit First Serve Miami. The Tuesday March 21st event was a success with great representation from both the U.S. Offshore clients, and the stars: Venus Williams, Chris Evert, Jack Sock & Nick Kyrgios.
 
For more information, please contact:
Kasia Jablonski
VP, Regional Marketing Manager – U.S. Offshore & Latin America
Kasia.Jablonski@PioneerInvestments.com

Cristina Campabadal Founds CCS Finanzas, a Multi Family Office with Offices in Barcelona and Presence in Miami and New York

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Cristina Campabadal funda CCS Finanzas, un multi family office con oficina en Barcelona y presencia en Miami y Nueva York
Pixabay CC0 Public DomainPhoto: LinkedIn. Cristina Campabadal Founds CCS Finanzas, a Multi Family Office with Offices in Barcelona and Presence in Miami and New York

After more than 15 years working in the financial and wealth management industries, as financial adviser, first in Spain and then in the United States – where she specialized in Latin American clients -, Cristina Campabadal has created CCS Finanzas, with the intention of protecting and accompanying clients in managing their wealth, with a difference.

The new Multi Family Office has an office in Barcelona and presence in Miami and New York, and offers advice on equity, access and search of investment opportunities, negotiation of external commissions, direct dealings with suppliers, investment monitoring and revision of accounts, as well as supporting and complementing existing individual family offices or family governance matters and foundations.

In her new company, she has the support of an Advisory Board, which includes four respected professionals, a team of analysts, and an art adviser based in New York, who will advise clients on their portfolio of art collections and investments in works of art, and which will be one of the differentiating points of this newly created Multi Family office.

Prior to the founding of the firm, and for the past two years, Campabadal has worked as an advisory associate at WE Family Offices in Miami. Previously, she had worked as director for Latin America and Development in a Spanish Multi Family office. Previously, she was linked to Banco Santander International Private Banking in Miami, where she was financial adviser for Latin American clients – Andean region – and to Grupo BBVA, in the Private Banking business for HNWI in Spain…

Graduated in Economics from the University of Barcelona, Spain, she has several advanced certificates in Wealth Management, including investments, banking, and tax matters.

Door Launches Digital Platform for Fund Selector Due Diligence

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18 gestoras y más de 100 selectores se unen a la plataforma digital de Door destinada a agilizar los procesos de due diligence
Pixabay CC0 Public DomainPhoto: Lastinitialy, Flickr, Creative Commons. Door Launches Digital Platform for Fund Selector Due Diligence

Door has launched its first digital platform to streamline the fund due diligence process between asset managers and fund investors. During this intial launch phase, 18 global asset managers will now submit fund information in an industry best practice, standard format which will be used by professional fund investors when monitoring and screening funds.

Door is registering fund investor users in groups of 100. The ‘First100’ Group is now oversubscribed, representing 28 major fund buying firms. Door is already registering users for its ‘Second100’ Group.

Driving value to all participants

Door drives value to fund investors and asset managers alike. Within fund investor teams, too much time is being spent collecting and organising fund information for analysis. Asset managers have to resource large teams to be able to respond to information requests in a multitude of formats.

Door brought together a collaborative group of innovators from 10 fund investors, such as Mediolanum, Santander, All Funds, EFG and Pictet Wealth Management, and 12 global asset managers, such as Schroders, Pictet Asset Management, Robeco, Aberdeen, Franklin Templeton and Columbia Threadneedle. They helped co-create the solution. Now 18 global asset managers will participate on the first Door platform.

Door is overseen and endorsed by the Association of Professional Fund Investors to ensure independence and best practice in fund due diligence. On Door, asset managers find efficiencies by reducing the repetitive nature of responding to due diligence requests and improve their responsiveness to client requests.

Derick Bader, Head of Marketing & Products at Pictet Asset Management said “Door helps us streamline and manage a large volume of information requests. We estimate that if Door had been in place in 2016, we would have saved more than 100 man/woman days of work and achieved a much quicker response rate to our clients.”

Ben Seager-Scott, Director of Investment Strategy & Research at Tilney said “Door is a welcome and innovative solution to help improve the efficiency and effectiveness of the fund due diligence process, which I believe will significantly benefit fund providers, fund analysts and our underlying clients. Standardising and digitising the common core of the due diligence process gives analysts access to an on-demand resource, while preserving the integrity of the proprietary elements of our due diligence and insight process. I’m grateful to Door for inviting us to be part of this exciting development, and am pleased to support such innovation.”

“Standardisation in due diligence information means I can access the majority of the information I need without waiting weeks for a response. It will save me time and allow me to focus on that information that is most important to me.” José María Martínez-Sanjuán, Santander.

Rob Sanders, Co Founder of Door said “Door is a simple solution to common innefficiencies. We aim to create value for all stakeolders in the fund due diligence process. Margin pressure and work volumes are increasing for both asset managers and fund investors. Digitisation, standardisation and the streamlining of this process make a lot of sense to our clients.”

For more information follow this link.

Philip Carey and Karim Aryeh Launch New RIA: Lloyd Crescendo Advisors

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Nace Lloyd Crescendo Advisors, de la mano de Philip Carey y Karim Aryeh
Pixabay CC0 Public DomainPhilip Carey (left) and Karim Aryeh (right) - courtesy photos. Philip Carey and Karim Aryeh Launch New RIA: Lloyd Crescendo Advisors

Located at 1450 Brickell Ave in Miami, Lloyd Crescendo Advisors arrives in the financial capital of Latin America to bring a traditional Swiss approach in wealth management. Philip Carey is the CEO, and Karim Aryeh is the CIO, both well-known professionals in Miami.

This newly formed Registered Investment Advisor was born of expertise from Lloyd Capital and Crescendo Capital, two Swiss-based firms. The headquarters of the firm and the wealth management business will be in Miami, while the asset management division will be run out of their New York office.

“Our advice is personal, independent and forward-thinking” – Karim Aryeh. Lloyd Crescendo Advisors will be focusing on bringing global diversification to its investors though the use of traditional, alternative and responsible investments. As part of their alterative offering, they will be focusing on private debt, hedge funds and real estate investments, while their responsible investments will incorporate environmental, social and governance criteria and seek out impact investments.

“We help clients align their investments with their values”- Philip Carey. Lloyd Crescendo Advisors will be looking to serve families all over Latin-America as well as domestic US HNWIs.

The CEO, Philip Carey has over 23 years of experience in the global wealth management industry between New York, London and Geneva. He started his career in Coutts from 1994 to 2001. Later, he worked as Director at Barclays Wealth & Investment Management from 2001 to 2005. Philip was Senior Private Banker at HSBC Private Bank from 2005 to 2011 when he left to start his own RIA in Switzerland: Lloyd Capital LLC.

Karim Aryeh, whom will actively manage the investments, brings more than 15 years of experience in the wealth management industry advising HNWI’s in Latin America and institutional clients. His career has taken him from New York to Geneva, and for the past 7 years, Karim has been based in Miami. He worked in UBS Wealth Management between 2002 and 2011 as Senior Investment Consultant and in Santander Private Bank from 2011 to 2016 as Senior Portfolio Advisor and Team Leader. Karim is a CFA Charterholder. He earned the CAIA Charter in 2006 and is a Co-Founder and Executive Member of CAIA Miami. 
 

José Castellano Leaves Pioneer Investments After 16 Years Developing the Iberian, US Offshore, and LatAm Markets

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jose castellano
Foto cedidaJosé Castellano, CEO adjunto y responsable de distribución internacional de iM Global Partner.. jose castellano

The merger between Pioneer Investments and Amundi continues ahead and, in this context, the first changes in the teams are beginning to be announced. According to Funds Society’s best knowledge, Jose Castellano, who until now has been in charge of Pioneer Investments in the US Offshore, Latin America, and Iberia regions, has decided to leave the fund management company in order to pursue other professional projects.

Castellano, who has been Managing Director and Head of the three regions for 16 years, has been an architect of the growth that Pioneer Investments has experienced in Iberia, US Offshore and Latin America, making these areas one of the most profitable in the whole group. In recent years he has also been involved in strategic projects, globally.

Castellano has reconciled these functions with the leadership of H4U properties, his position as an investor in Thinking Heads, or, during the last few years, as Director for Southern Europe, Italy, Switzerland, Spain, and Portugal in Hedge Fund Association. Prior to joining Pioneer Investments in January 2001, he was Director for Morgan Stanley’s private equity group for two years, and Director of Wealth Management for a further seven years at the same entity.

Pioneer Investments has just confirmed the news and explains that the responsibility of the regions will be shared between the in European and US teams. Cinzia Tagliabue, Head for Western Europe and Latin America, will be responsible for the management company’s distribution business in Iberia and Latin America. She will be supported by an experienced team throughout these markets dedicated to providing the best quality service to customers.

Laura Palmer, Head of Intermediary Distribution in the US, will manage the sales team based in Miami, which drives the growth of the business in US Offshore. Palmer leads the US distribution team, which focuses on relationships with key financial intermediaries in the country, and reports to Lisa Jones, President and CEO of Pioneer Investment Management USA Inc. “We are confident that this change of management will strengthen our ability to serve offshore clients with excellence in the future,” the statement said. However, Pioneer Investments has commenced the process of hiring a Sales Manager for the US Offshore market.

The Merger Continues

Castellano’s departure falls within the context of the merger between Pioneer Investments, which will continue with its usual activity, and Amundi, which will also continue its course. This week, the European Commission has given the green light to the operation, considering that the operation will not have a negative impact on the European economic space.

“The operation would not give rise to competition problems given the complementarity between the activities of the companies, the small increase resulting from the operation, and the existence of several competitors, which guarantees sufficient choice for customers,” the Brussels statement said. In this way, they could meet the deadlines and tie up any loose edges of the operation before the close of the first half of this year.

Pioneer’s acquisition by Amundi, valued at 3.545 billion Euros, was notified to Brussels on the 20th February, and has been examined under the normal merger control procedure. The acquisition makes the resulting group the eighth largest global asset manager with almost € 1.3 trillion in assets under management.

Funds Society Magazine Taps Trendscout to Reveal Investor Trends in Spain and Latin America

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Funds Society utiliza Trendscout para revelar tendencias de los inversores en España y Latinoamérica
Pixabay CC0 Public DomainPhoto: RonKikuchi, FLickr, Creative Commons. Funds Society Magazine Taps Trendscout to Reveal Investor Trends in Spain and Latin America

Spain and Florida-based “Funds Society” magazine is a media partner of fundinfo that focuses on investment fund news for Spanish-speaking countries. Available in both Spanish and English, Funds Society now publishes a monthly article which reveals real-time investor trends about funds distributed in Spanish speaking regions.

By tapping into fundinfo’s online fund analytics tool “Trendscout”, Funds Society can now publish articles on a wide range of topics including changes in investor interest on a per-category basis, a precise ranking of the most interesting funds, and macro trends such as an overall shift from passive to active funds.

Trendscout charts worldwide industry trends and investor interest by monitoring investor activity on fundinfo’s web platform. With Trendscout, asset managers identify sector and investor trends to support product launches and strategic decisions, or monitor the effectiveness of their sales and marketing efforts. Financial media use trendscout to publish revealing trends about the latest developments in country-specific fund markets.

For more examples about what Trendscout can do for the financial media, read our recent Trendscout newsletter.

 

 

Pioneer Investments, Investec AM, JP Morgan and BlackRock Get 850 Million Dollars From Afore XXI Banorte’s Mandate

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Investec AM, Pioneer Investments, JP Morgan y BlackRock reciben 850 millones de dólares por parte de Afore XXI Banorte
Pixabay CC0 Public DomainPhoto: Jsouth . Pioneer Investments, Investec AM, JP Morgan and BlackRock Get 850 Million Dollars From Afore XXI Banorte's Mandate

Mexican pension fund manager Afore XXI Banorte awarded Pioneer Investments, Investec Asset Management, JP Morgan Asset Management and BlackRock, with close to 850 million dollars to invest in an Asian Equity Mandate. To date, Afore XXI Banorte has funded one previous mandate on European Equity Market and this is the second project that they are awarding, continuing the pension funds’ diversification to international markets through active management.

The Asian Equity mandate follows an innovative pan Asiatic approach that includes Japan. This allows the investors to benefit from emerging Asia potential, while investing in developed market high quality companies based in Japan and Australia.

Juan Manuel Valle, CEO for Afore XXI Banorte, remarked: “The assignment of this mandate aims at optimizing our affiliates’ investments, which is evidence of the great progress undertaken by the savings for retirement industry in Mexico. This puts Afore XXI Banorte on the cutting edge when it comes to investment management and reinforces our position through participation in complex markets like Asian equities, taking advantage of international managers’ expertise, in addition to using transition management services and the international custodian model offered by the State Street Bank and Trust Company platform. The latter with the objective of enhancing the return of our affiliates’ portfolios in the long term”.

Sergio Mendez, CIO for Afore XXI Banorte noted: “With the funding of the Asian equity mandate, Afore XXI Banorte confirms its commitment to grant its affiliates access to the best investment vehicles, in order to achieve better returns to their investment”.

Gustavo Lozano, Country Head of Pioneer Investments Mexico, stated: ‘Funding of this mandate in just four months after being appointed managers signals that the regulatory changes, along with our previous experience onboarding Mexican Pension Funds’ projects, shortens implementation times of mandates in Mexico and this will be in itself an asset class catalyst. Pioneer Investments manages and on-boards these projects from London bringing diversification to pensioners and engaging Mexican Institutional clients with comprehensive relationships where we are not only providing investment services, but complement this with Knowledge Transfer Services, which add value to the business proposition.”

Pioneer Investments received 150 million dollars which will be actively managed by the specialist Asian Equities investment team at Pioneer Investments’ London Investment Center. BlackRock, got 200 that will be managed by Andrew Swan. JP Morgan Asset Management got 280 million and Investec Asset Management received 220 million dollars.

“The Role of Fixed Income as a Volatility Dampener in a Diversified Portfolio Will Remain”

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“El papel de la renta fija como amortiguador de la volatilidad en una cartera diversificada permanecerá”
Ariel Bezalel, gestor del Jupiter Dynamic Bond. Foto cedida. "The Role of Fixed Income as a Volatility Dampener in a Diversified Portfolio Will Remain"

Fixed income faces many challenges today, but Ariel Bezalel, manager of the Jupiter Dynamic Bond, explains how, by combining a top-down and bottom-up approach with flexible management, opportunities can be found. Its bets: the financial sector of developed markets and emerging markets like India (debt in dollars and also in local currency). In this interview with Funds Society, he also explains how he keeps the risk of duration in the face of rising inflation and political risks in Europe.

Many experts say that the biggest focus of trouble could be now in fixed income: Is it true that nowadays fixed income has a higher risk profile than other assets? Why?

Undoubtedly, with yields at today’s levels it is not easy to achieve compelling returns. We will however have to work hard to spot the opportunities given the low yield environment. A key to this is our time-tested process combining top-down and bottom-up analysis as well as our flexible, unconstrained mandate. That flexibility enables us to find those opportunities.

It is worth mentioning as well that despite the rate hikes expected by the market, we expect that the role of the fixed income asset class as a volatility dampener in a diversified (bond/equity) portfolio will remain.

It seems that the inflation is going to rise suddenly… Are you amongst the people who think that or do you think expectations are overstated?

Inflation in the developed world has certainly been picking up. Market indicators, such as breakeven inflation rates, are rising in the UK, US and Germany, putting upward pressure on government bond nominal yields. Elsewhere, economic growth in China is ticking along nicely, reflected in resilient commodity prices and brighter US service sector data and wages.

Donald Trump’s election of course is a further inflationary signal. The US president’s rhetoric points towards potentially faster economic growth, and with an economy almost at full employment, inflationary pressures are bound to build. However, Trump still has yet to implement his plans and there is still a lot of uncertainty around the plan and the timeline.

Do your inflation expectations have any impact on the portfolio of your fund? Are you preparing for the rise of the inflation or it is too soon?

We are fortunate that our strategy’s unconstrained mandate means we can select what we consider to be the best opportunities across global bond markets while seeking to carefully mitigate risk, in part through management of duration which we continue to keep low.  In credit, for instance, as we see inflation risk picking up and favour short-dated paper with decent carry alongside ‘special situations’ where we see the possibility of capital gains.

With inflationary pressures building up in Europe, and rising political risk surrounding the French elections, we have also initiated a short position in French government bonds over the months.

Do you believe that this a moment to be cautious with the duration and to assume risk in credit, or are there various shades to this idea? Why?

We are balancing careful management of duration with a reactive approach to market developments and continue to use the strategy’s unconstrained mandate to exploit ‘special situations’ where we see the possibility of capital gains. That said, we have been steadily reducing duration, starting in August 2016, to help insulate the fund from rising rates.

Regarding central banks: have the markets already discounted the interest-rate hikes what the Fed is expected to make this year?

Markets are currently pricing in a 30% probability for a rate hike in March due to lackluster average earnings and the back-up we’ve seen in 10-year yields. The markets though see 50/50 chance of the Fed raising in April, and a close to 70% chance of a hike in June. However these probabilities may change significantly as Trump fiscal policy unfolds during the year.

Will the ECB take progressive measures also in terms of “taper tantrum” in the mid-term? Will it be more difficult for Europe than for the US to withdraw stimulus? What will be the effects on the European debt market?

The ECB’s decision to reduce its monthly asset purchase programme from €80bn to €60bn in April demonstrates the pressure the central bank faces from hawkish members to reduce the pace of the programme. While the ECB would seek to minimise disruption in the bond markets, it will be more and more difficult to justify QE as inflation picks up in the euro zone. Another very significant event risk for peripheral spreads in Europe will be the French elections in May. A victory for Marine Le Pen would likely trigger a significant widening across European peripheral spreads.

In which segments of the fixed income market do you see the best opportunities these days? (by regions, sections, countries … and by public or private debt)

Within developed markets we see opportunities in the banking sector as it benefits from both the reflation in the global economy and a secular trend towards deleveraging. EM is another area we like. However one has to be very selective. One of our main picks is India where the combination of favorable demographics and improvement of the institutional framework since Modi’s arrival to power have underpinned our investment thesis.

Because of the next rate hikes, is it a good moment to invest in the banking sector? Many people are talking about the attractive of the subordinated bank debt. Do you agree with them?

Banks remain a favoured sector for us because secular deleveraging combined with steeper yield curves should ultimately benefit bond investors in this area, particularly junior bond holders, although one has to be selective.

What are your views on EM debt? Do you prefer local or hard currency?

There are some exciting opportunities in emerging markets. We have been increasing our exposure to Indian bonds because of the country’s favourable long-term economic and political backdrop, putting us in a position where we are able to capture attractive yields. I’m very encouraged by India. It is a very insular economy; it doesn’t rely too much on exports, it doesn’t have much dollar-denominated debt and the current government is a very business-friendly administration that is really picking up on implementing reforms over the last year or so. We invest in both dollar-denominated and local currency bonds.

Do you believe that public Spanish debt has potential or this is not a good time to invest?

We have limited exposure to peripheral Europe due partially to the uncertainty surrounding the European project. However, one has to recognize that Spain’s economy is showing great strength underpinned by the structural reform undertaken following the crisis in the euro zone debt crisis.