Despite some of the aggressive positioning, volatility has been kept pretty low across both products because Bezalel is very mindful of the downside risk and the positions are “sized appropriately”.
One of his concerns is that there is not a relevant benchmark for the fund’s unconstrained approach, and although it is not an absolute return product either, he says ultimately the aim is to achieve a positive return, year in, year out.
“We don’t think about overweight or underweight; we look at the portfolio holistically and look for an absolute return position.”
In the case of the Australian Government bond exposure, he explains it provides a nice hedge to risk in other parts of the portfolio, typically trading with a strong correlation to US Treasuries.
“It’s one of our bigger weightings in the fund today because our conviction has grown. The Australian economy is set to go through an extensive period of rebalancing.”
Right call, right time
But UK fixed interest is the single biggest component of the fund, at 31%, which harks back to another of Bezalel’s successful credit calls in relation to the banks.
“What we love are deleveraging credit stories. Banks have been a major play for us for a number of years now, because on the back of pressure from governments, regulators and central banks, they have been under immense pressure to keep on deleveraging their balance sheets.”
With that process still ongoing, and the UK regulators probably the most stringent of any in Europe, spreads grind in tighter and tighter and, in turn, their bond prices have moved higher.
“The banks have probably been our top corporate credit trade for a number of years. That’s why we’ve had a big exposure to the UK, because of the banking system where we’ve been big fans,” Bezalel says.
