First 50 Funds Interview: Jupiter Strategic Bond’s Ariel Bezalel
Moneywise’s Edmund Greaves meets fund manager Ariel Bezalel to get the lowdown on Jupiter Strategic Bond, a member of the Moneywise First 50 Funds
What is the Jupiter Strategic Bond fund?
It is a ‘go-anywhere’ bond fund that seeks to invest in the best opportunities globally, across a range of fixed-interest securities [debt issued by companies to raise money].
We spend a lot of time looking at the macro-economic picture. We’re always monitoring how the global economy evolves. That has a big bearing in terms of risk in the portfolio. But there is an intensive bottom-up approach too. Pretty much every day we meet companies from all over the world. We’re active in European and US corporates [companies], and emerging markets.
Every year, we try to outperform our peer group in the unconstrained bond space. That’s ultimately what we want to achieve in the fund.
How do you identify bonds to invest in?
Our standard way of thinking, and what I always ask the analysts, is does this company need leverage [debt], does it generate free cash flow to pay down debt?
It’s looking at the viability of the business model. To use a Warren Buffet term, is there a ‘moat’ around the business? Does it have an edge or unique selling point?
When looking at developed market government bonds, it is about taking a view on interest rates. How do we see the interest rate picture evolving? Do you think that the economic picture is deteriorating?
Typically, if we think that the economic picture is deteriorating the content of AAA-rated government bonds in the fund increases.
What’s been your recent investment strategy?
We have reduced our corporate exposure and boosted our exposure over the course of the past 12 months to US Treasuries and Australian government bonds.
Australia is a country that hasn’t seen a recession for almost 30 years. We believe that the luck of the Aussies is now running out, driven primarily by the downturn in the housing market. If housing goes, the economy goes.
The optimistic outlook in 2018 for the Australian economy was complacent in our opinion. We aggressively bought Australian government bonds, and yields have collapsed over the course of 2018 and we still think they could go down more.
We also think America has had its best days. We think the impetus from tax cuts is in the middle of fading away.
We think the yield curve continues to flatten out in the US and is perhaps in danger of inverting later this year, signalling a recession is going to happen in the not-too-distant future.
How often do you buy and sell bonds?
Our trading volumes have come down a lot because we’ve been preparing the fund for a challenging outlook.
For the past few months, where we have had rallies (which we classify as bear market rallies), we have used them to reduce risk further by going through the portfolio to see which names we are confident with, using any rallies in the corporate bond market to reduce risk even further.
What’s been your best investment decision?
Funnily enough, the Australian bond position is something that we latched on to when yields were above 6% and today’s yields are hovering a bit above 2% so that has been a fabulous trade for the fund.
In the past decade, there has been ageing demographics in much of the developed world. There are poor demographics in some of the larger emerging markets like China too, with a shrinking workforce and ageing population.
The other big trade in the fund in the past decade has been European banks, which have been a big driver performance. We’ve been very bullish [confident] on the UK banks too.
And the worst?
We really pride ourselves on risk management. There have been a few poor credit calls, but nothing that has dramatically impacted the fund.
“There have been a few poor credit calls, but nothing that dramatic”
What’s the first thing you (personally) invested in?
For many years, I’ve held on to gold, as a kind of hedge. As well as owning a lot of my own fund (it’s always good for the chef to taste his own cooking), personally I own a lot of gold-mining ETFs (Exchange-Traded Funds).
I don’t think unconventional policy making will go away any time soon. There is an ongoing risk that central banks will have to keep rates very low for a very long time. I don’t think we will see the end of quantitative easing or other forms of money printing.
With that in mind, some hedge [protection] is needed. Gold should outperform most currencies over the long term.
What’s your top tip for a beginner investor?
Right now it is important to be diversified. We are facing a very uncertain climate. Investors need to take more of a conservative approach. Asset prices across the board are somewhat inflated.
This has been one of the longest bull markets [where share prices rise] and economic cycles in history. I would be cautious and inclined to take a more defensive approach.
Cash, as ridiculous as it sounds, is not a bad thing to own right now. If you plan to have some equity market exposure [buying shares] or credit exposure [buying debt], make sure you are at the more cautious end of the spectrum.
Jupiter Strategic Bond Key Stats:
Fund size: £3.6 billion
Ongoing charge (OCF): 0.73%
Source: Jupiter Asset Management, December 2018
The manager behind the fund
Ariel Bezalel started his career at Jupiter and has been a member of the fixed-income team since 1998 and a fund manager since 2000. He is currently head of strategy, fixed income and manages the Jupiter Strategic Bond Fund and the Jupiter Dynamic Bond fund.
Ariel has a degree in Economics from Middlesex University.
|Five year discrete performance of Jupiter Strategic Bond (%)|
|Jupiter Strategic Bond||3.8||0.6||6.9||3.7||-1.7|
Index: IA Sterling Strategic Bond, Source: FE Trustnet January 2019