PI Partnership – Jupiter Asset Management


provide a framework for their core strategy. However, focus- sing solely on a fundamental approach to investing is not enough any longer to outperform in modern financial markets. Bottom-up macro analysis, a more technical approach involv- ing the studying of individual market mechanics, is becoming more common. Given the growth in markets size in the past decade, markets themselves can often become the story and be key drivers of the broader asset classes and potentially impact economic fundamentals directly. This has been critical to out- perform in recent years.


In absolute return bond (ARB) strategies, the goal is to con- struct a portfolio that has appropriate characteristics in terms of its duration, yield curve, credit, country, and currency expo- sure. The strategy should utilise a full derivative overlay, and so can achieve positive returns in a rising yield environment. The process should look to achieve diversified returns across the fixed income and currency spectrum, and not relying on any one specific area of the market. The strategies will come with varying degrees of liquidity and volatility. Investment time horizons will tend to be shorter as the strategy is continuously reinvented to fit the up-coming macro environment and achieve its positive return objectives.


The strategy may utilise a proprietary quantitative sovereign analysis framework to assess environmental, social and gov- ernance (ESG) risks within the sovereign space, and supple- ment this with qualitative work around key sovereigns as an additional layer of analysis. More generally, the strategy may


also look to exclude sectors and names that do not meet a rig- orous assessment of ESG criteria.


In recent years, the sector has suffered outflows as fixed income has been in a bull market and long only strategies have dominated. This was supported by the financial crisis as all economies were hit, damaging macro volatility and proved a difficult environment for ARB investors to fund diversified returns. More recently, the sector has seen a revival as the low level of yields and credit spreads are seeing investors look elsewhere for return. Inflation fears have ignited concerns over fixed income markets as the cycle has turned higher. The extreme policy action has also raised opportunity as economies move at different speeds offering up diversified returns that ARB man- agers crave. Over this more difficult period for ARB strategies, the number of viable funds has shrunk as investors closed funds, suffered underperformance, or failed to stick to their true diversified ARB investment processes.


Our belief is that more traditional strategies will struggle to make positive returns as the global economy recovers from the pandemic, monetary policy is tightened and as inflation is higher than in the last decade. The track record of sourcing returns from interest rates, spread and currency markets on the long and short side puts the strategy in a good position to outperform in this environment. If the recovery falters and there is a slide into deflation, then the risk is more duration heavy strategies would perform better.


Important information: This commentary is intended for investment professionals and is not for the use or benefit of other persons, including retail investors. This commentary is for informational purposes only and is not investment advice. Market and exchange rate movements can cause the value of an investment to fall as well as rise, and you may get back less than originally invested. The views expressed are those of the Fund Manager at the time of writing, are not necessarily those of Jupiter as a whole and may be subject to change. This is particularly true during periods of rapidly changing market circumstances. Past performance is not a guide to future performance. Holdings examples are for illustrative purposes only and are not a recommendation to buy or sell. Every effort is made to ensure the accuracy of any information provided but no assurances or warranties are given. Issued by Jupiter Asset Management Limited (JAM), registered address: The Zig Zag Building, 70 Victoria Street, London, SW1E 6SQ is authorised and regulated by the Fi- nancial Conduct Authority. No part of this commentary may be reproduced in any manner without the prior permission of JAM. 28659


April 2022 portfolio institutional roundtable: Fixed Income


25


Page 1  |  Page 2  |  Page 3  |  Page 4  |  Page 5  |  Page 6  |  Page 7  |  Page 8  |  Page 9  |  Page 10  |  Page 11  |  Page 12  |  Page 13  |  Page 14  |  Page 15  |  Page 16  |  Page 17  |  Page 18  |  Page 19  |  Page 20  |  Page 21  |  Page 22  |  Page 23  |  Page 24  |  Page 25  |  Page 26  |  Page 27  |  Page 28  |  Page 29  |  Page 30  |  Page 31  |  Page 32  |  Page 33  |  Page 34  |  Page 35  |  Page 36