Government bonds see Colchester Global excel

17 May 2019

After a volatile year for global bond markets, the Colchester Global Government Bond Fund has taken the crown in the Global Fixed Income category in a field littered with big-name fund managers.

Colchester Global Investors investment officer, Martyn Simpson, credited the fund’s “tried and tested value investing style” for its success in a tough time for the sector, as well as the fact that it only invests in government bonds.

In the last year, especially in the fourth quarter, credit and other riskier fixed income products struggled, but the Colchester Global Government Bond Fund held up well due to its portfolio of government bonds.

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Simpson pointed to the fund’s allocations to Australian and New Zealand bonds specifically as contributing to its success, with both central banks remaining on hold, as well as targeted small allocations to emerging markets such as the Colombian and Malaysian bond markets.

PIMCO, who was a finalist with its Global Bond Fund, sought to navigate the market volatility through diversification instead, with its investment team citing allocations to various sectors including duration, credit, securitised and modest currency exposure enabled its outperformance over the last year.

The Colchester offering, too, looks beyond just bonds, which it values by their real yield, to also offer investors consistent alpha from currency. The fund manager values this latter asset class by the real value of the exchange rate.

According to Simpson, Colchester’s long position in the British pound led the strong results from its currency allocations.

“Whilst most people were pre-occupied with the Brexit process and the political machinations in the country, by concentrating on the fundamental value in the currency we were able to capitalise on this,” he said.

Co-head of global portfolios at Western Asset, Gordon Brown, who was a finalist with the Legg Mason Western Asset Global Bond Fund, also believed that the receding risk of Brexit would open up value opportunities across European government bonds.

“With US Treasury [bonds] now more in line with our long-standing view of the US maintaining a moderate growth speed, [our] global portfolios team has been exploring relative value opportunities across European and emerging market government bonds and credit markets,” Brown said.

“We believe both areas stand to benefit as risks such as Brexit and trade tensions recede, and global growth conditions stabilise further.”

Looking forward, Simpson believed that Colchester’s offering would continue to provide clients with alpha although government bond markets had rallied. He also said that, should global growth falter or a recession hit, that global bonds would rally further.

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