Low economic growth, low interest rates and low inflation are here to stay according to Ariel Bezalel, manager of the Jupiter Strategic Bond Fund. Although some regions are making incremental improvements, he finds it hard to foresee meaningful global economic growth in the near term.
In Ariel Bezalel's view, the economic outlook for the euro zone is particularly precarious. He is acutely aware significant headwinds remain in the region and it is vital they are confronted. Until they have been, the effect of problems looming in peripheral Europe could continue to spread elsewhere. Around half of UK exports are sent to Europe and these could suffer unless there is an improvement in Europe's growth and consumption levels.
An area where Ariel Bezalel's outlook has become more positive over the past year is the banking sector. Banks might still have a long path to recovery, but they have been taking steps to improve their balance sheets and have seen a decline in their cost of funding. Exposure to banks in the portfolio is concentrated in areas such as the US, UK and Germany. The manager has been avoiding positions in 'toxic' nations, including those in peripheral Europe where much larger amounts of capital are needed to reduce debt levels.
Ariel Bezalel is currently finding most opportunity in higher risk, high yielding corporate bonds, where 60% of the portfolio is invested. These bonds have a greater chance of default and offer a higher yield to compensate investors for the extra risk. He aims to offset some of this risk through largely investing in more defensive sectors such as the food industry, where he believes the risk of default is lower than yields imply.
He also has a preference for secured debt - bonds backed by collateral to reduce the risk associated with lending. To this end, the fund has invested in bonds backed by property, such as one issued by Punch Taverns, the pub and bar operator, at present offering an attractive yield of around 7%.
Bonds issued by companies to finance the construction of oil rigs have been a diminishing theme in the fund recently. Ariel Bezalel believes these bonds have become expensive and has seen their yields fall as prices have risen, so he has been taking profits.
In his outlook for 2013, Ariel Bezalel is reasonably positive, but expects inevitable bumps along the way. If markets do get hit by further short-term volatility, he views periods of falling prices as a perfect buying opportunity. The manager has so far been successful in using his flexibility of investing across the fixed income spectrum. Since launch in 2008, the fund has returned 67.5% compared to the sector average of 30.0%. Although past performance is not a guide to future returns. We continue to hold him in high regard and the fund maintains its place on the Wealth 150 list of our favourite funds across the major sectors.
|% Growth 01/01/09 to 01/01/10||% Growth 01/01/10 to 03/01/11||% Growth 03/01/11 to 02/01/12||% Growth 02/01/12 to 01/01/13|
|Jupiter Strategic Bond Fund||42.5||11.2||4.5||16.1|
|IMA £ Strategic Bond||20.9||7.4||2.2||12.5|
Past performance is not a guide to future returns. Full year performance figures before this date are unavailable. Source: Lipper.
|Fund manager's initial charge||4.00%|
|HL saving on initial charge||3.75%|
|Net initial charge||0.25%|
|Fund manager's annual charge||1.25%|
|HL annual saving||0.10%|