Citywire - For Professional Investors

Register to get unlimited access to all of Citywire’s fund manager database. Registration is free and only takes a minute.

$9.7bn credit manager: why I’m holding 56% cash

$9.7bn credit manager: why I’m holding 56% cash

The idea of having to be fully invested at all times is an outmoded and impractical idea according to JPM’s Bill Eigen, who runs the $9.7 billion JPM Income Opportunity fund.

Speaking to Citywire Global, Eigen made the comments in response to a question on his cash position, which currently stands at 56.5% of the absolute return credit fund.

‘On one point I would say investors are plainly wrong, and I have been saying it for a number of years, you do not need to be fully invested at all times. The idea, which is a widely-held one, is completely inane.’

‘We are benchmarked against cash and we are trying to better that, so the opportunity set we can exploit is very, very varied and can be very difficult. So when investors hate everything that is when we can start to move to cash,’ said Eigen.

Eigen pointed to recent market moves and said, since the start of the year, if you had opted to be fully invested, targeting short-term US debt or similar, you could be between 200-300bps worse off than holding cash.

‘We are in a period where the bond market is coming out of a 31 year bull run and you have to be conscious of that. Your first job, as a fixed income investor, is not to lose money. Your second job is to not forget objection one and try to make some good returns on top.’

‘Right now I would give the fixed income opportunity set a four out of ten, or perhaps a 3.5, so we have decided to step back, hold a bit more cash.’

Pointing to previous periods where investment proved difficult, Eigen said he has taken his cash exposure even higher in the absolute return credit strategy. For example, following the collapse of Lehman’s he held around 85%.

‘The highest amount of cash I have had is around 85%, which was through 2008 because there were no real safe havens to go to, there were no margins of safety.’

‘This wasn’t universally accepted and I said to some people that if they didn’t like that idea and the way I run money, don’t invest.'

EMD short

One aid to recent outperformance, Eigen said, has been drawn from his short book, where he made a timely bet against the performance of emerging market debt.

‘Our biggest short position since the start of the year has been a short in EMD and that is not because we hate EMD, don’t get me wrong, it is all about margin of safety,’ he said.

‘Because you weren’t just buying the fundamentally strong, you were getting a bit of Argentina, Colombia, Venezuela and other markets, which weren’t going to do that well.’

‘For us it was a short position which we saw could underpin a large number of decisions we made in the long book. I would say, roughly, for every dollar long we were 40 cents short EMD. There were some of these positions we chose to close over June and July.’

The JPM Income Opportunity A Acc EUR Hdg has returned 9.3% over the three years to the end of September 2013. This compares to 5.15% return by the average manager in the Citywire Alternative Ucits Credit Strategies sector over the same period.

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Events
  • Citywire Miami 2018: all the pics from day one

    Citywire Miami 2018: all the pics from day one

  • Selector soccer stars: all the photos from the Citywire Miami 2018 matches

    Selector soccer stars: all the photos from the Citywire Miami 2018 matches

  • Citywire New York 2017: All the pics from our fund selector forum

    Citywire New York 2017: All the pics from our fund selector forum

  • Citywire Latin America 2017: check out the pics from day two

    Citywire Latin America 2017: check out the pics from day two

  • Citywire Latin America 2017: all the pictures from day one

    Citywire Latin America 2017: all the pictures from day one

  • Citywire Santiago 2017: all the pics from our fund selector forum

    Citywire Santiago 2017: all the pics from our fund selector forum

  • Citywire Mexico 2017: all the pics from our fund selector forum

    Citywire Mexico 2017: all the pics from our fund selector forum

  • Citywire Miami 2017: all the photos from day one

    Citywire Miami 2017: all the photos from day one

  • Citywire Miami 2018: all the photos from day two

    Citywire Miami 2018: all the photos from day two

  • Citywire Miami 2017: all the pics from our fund selector forum

    Citywire Miami 2017: all the pics from our fund selector forum

  • Wine tasting at the Ritz Carlton Santiago

    Wine tasting at the Ritz Carlton Santiago