Chairing various investment conferences since the start of the year, I have been struck by a subtle change in approach by most of the bond fund managers who have spoken – and by bond fund managers, I of course mean strategic bond fund managers since, with the exception of a few emerging market debt devotees, they seem to be the only members of their tribe allowed out in public these days.
Usually the first part of any fixed income presentation will paint a macroeconomic picture that, were it an actual work of art, would be ‘The Scream’. It probably goes without saying this is not the change in approach to which I am referring – it has for years been standard practice for bond managers to scare the willies out of investors as the most effective way of keeping them in the fold.
What has been different is an acknowledgement there is precious little in the way of value in fixed income markets these days although – much like the tuk-tuk driver who once swore to the younger, backpacking me that a Thai bank holiday meant every single tourist attraction in Bangkok was closed except for a single jewellery store that happened to be owned by his uncle – they do know one place …
This spread – for it is usually a spread – may be off the beaten track but it is, to each speaker’s way of thinking, the one great hope for fixed income as it stands and certainly the only way they can currently justify their existence. In other words, depending on your worldview, it is the only thing stopping you rushing for the door marked ‘equities’ or the one marked ‘cash’.
“But hang on, Julian,” you are thinking. “This is all mildly interesting but when will you mention Neil Woodford as apparently the law now requires every investment article to do?” And I fear I must disappoint you for I have no new insight of the kind that commands a Woodford-based headline these days. I do not know what he had for breakfast this morning. I do not know his favourite Abba song.
But wait – I wonder if there might be a link between the apparent willingness of investors to accept the bond managers’ arguments regardless of the lack of value in the asset class and the fact that, by the time he left Invesco Perpetual, Woodford’s Income and High Income funds accounted for almost two-fifths of all the assets under management in their 92-stromg peer group.
What I mean is, was that merely an updating of the old investment cliché “you’ll never get fired for recommending IBM” – with the acronym then standing for “Invesco’s Biggest Manager”? And to immediately overplay the joke, do investors now believe they are playing it safe by plumping for “Inadequate Bond Mandates”? To be clear, when I talk about investors “playing it safe” I am leaving it entirely to you to decide whether that is in regard to their clients’ money or their own jobs.
Julian Marr is editorial director of Adviser-Hub and co-author of Investing in emerging markets – the BRIC economies and beyond
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