Christine Johnson and John Peta have assumed responsibility for the Old Mutual Global Strategic Bond Fund. They have taken over from Stewart Cowley, who stepped down following the announcement he will leave Old Mutual at the end of June 2015.
Under the new managers the fund will have broadly the same objective - to grow capital over the long term and provide an element of shelter during tougher times. Like Stewart Cowley, Christine Johnson and John Peta's views on the wider economic and bond market environment will dictate how the fund is positioned.
In recent years government and corporate bond markets in the developed world have performed well, with yields falling significantly (meaning prices have risen). The managers now believe we are in for a period of low, or potentially negative, returns from developed bond markets, while there could also be high volatility.
This view chimes closely with Stewart Cowley's, but where the new managers differ is in the approach they will use to generate returns in this environment. Stewart Cowley invested mostly in bonds issued by developed-market governments, and currencies. He also had the flexibility to use derivatives to position the fund to benefit from rising bond yields (and falling prices) which adds risk. In recent years using this flexibility did not pay off as these bonds have generally risen in price.
Christine Johnson and John Peta will take a more pragmatic and diversified approach. As well as using the same tools as their predecessor they plan to invest more in corporate bonds, including higher-risk high yield bonds. They will also invest in emerging market bonds and currencies, which are higher risk. The managers may run a concentrated portfolio which enables each investment to have a significant impact on returns, although it is higher risk.
Their more pragmatic approach will also see them aim to take advantage of a broader range of investment themes. They see the US economy improving, for example, so are willing to have exposure to corporate bonds, including those issued by financial companies such as the bank Wells Fargo.
The managers also suggest the US could begin to raise interest rates soon, but they are likely to remain on hold elsewhere. Rising interest rates are often seen as negative for bonds with a long time until maturity, as the fixed interest they offer looks less attractive against better returns available on cash deposits. They will therefore have low exposure to long-dated US government bonds, but are willing to hold longer-dated European government bonds.
As for emerging markets they plan to avoid Chinese corporate bonds and the currencies of countries reliant on China as growth there has transitioned to a lower and more sustainable level. In contrast, they believe negativity towards Russian bonds and the rouble has been overdone, so they intend to have some exposure although they could still fall further.
Over the long term the managers will aim to outperform the JP Morgan Global GBI Unhedged Index through a combination of income and capital growth.
Our view on this fund
Christine Johnson has managed the Old Mutual Monthly Income Bond Fund since September 2010 and the Old Mutual Corporate Bond Fund since April 2011. Both have performed better than their respective sector averages, although there are no guarantees this performance will be repeated on the Old Mutual Global Strategic Bond Fund. John Peta has 28 years' experience managing global bond and emerging market debt funds, and both managers will be supported by a well-resourced team at Old Mutual.
We are broadly in favour of the more pragmatic approach being taken by the new managers, although overall the increased allocation to corporate bonds, including higher-risk high yield bonds, and emerging markets debt, means the fund could be significantly more volatile. We therefore view it as a higher-risk proposition than it was under Stewart Cowley's tenure. We will monitor the progress of the fund, but we have decided not to reconsider it for the Wealth 150 list of our favourite funds across the major sectors at the current time.