EFG Asset Management’s head of mutual fund selection, Andrew Harradine (pictured), reveals why sticking with one of the bond industry’s best-known names is vindicating his support during darker periods.
Behaviorally, fund buyers can be inclined to gravitate towards funds that have done well and associate short-term performance with superior skill. Conversely, periods of weak performance can result in funds being viewed as inferior. We subscribe to the view that past performance is not the indicator for future performance.
I think one of our key jobs really, internally, is to fully understand performance patterns both good and bad. If poor performance can be rationalized and we think the current market environment is better suited to the fund, we try to convince parties to continue to hold these funds as mean reversion can play out.
Does that make that a bad fund? If the manager sticks to their convictions and doesn’t throw in the towel on their portfolio, and we can see the planets lining up for that particular fund to do better, we are happy to advocate buying it. One reason that the fund lagged was because it was so light on duration.
Our general outlook expects rates to drift up and in a rising rate environment, as long as the manager sticks to their views, this fund can actually be aligned with our prospective view of the world.
If we rewind slightly, in the run-up and the immediate aftermath of the election in the US, one of the biggest positions was Mexican bonds and the peso, so the fund was struggling due to a) lack of duration and b) long 25% of the fund being in Mexico, so a really big position.
We felt the Mexican peso was looking attractive and, while we didn’t know what the future was going to look like with regards to Trump’s policies, we have seen a massive rally from both the Mexican peso and the Mexican bonds over the period almost immediately since the election.
The Templeton Global Bond fund has been one of the best-performing bond funds in the market over the past six months. So getting under the bonnet, understanding why a fund is doing badly, what the macro is doing, what they are doing on positioning and can lead to nice returns.
In that particular case, we have it in the New Capital Global Alpha fund and added a couple of percent to that fund at the back end of last year and it has been a really good performer for us.
That is a really good example of not throwing the baby out with the bathwater. Hasenstab’s record, ultimately, over the very long term is an exceptional record. We understood why the fund had done badly over the past three years and took the view that the future could look slightly different.