Pioneer Investments’ Ken Taubes has selectively increased his exposure to high yield bonds in order to capitalise on market turmoil over the past month.
Speaking to Citywire Global, the Citywire A-rated manager said he had added 5% to the asset class between September and October.
‘We wanted to take advantage of the dislocation we had seen. We didn’t think it could have been a sustained trend,’ he said.
Taubes had a 45% position in high yield at the beginning of 2014, which he cut back considerably over the first nine months of the year because he said valuations had got a little bit ahead of themselves.
‘We are not very concerned about the asset class as we think the fundamentals are solid,’ he added.
Elsewhere in the fund, the manager reduced the portfolio’s duration in the long end of the yield curve over the summer as he said it is now closer to fair value than shorter maturities.
‘At the start of the year, we were overweight interest rates sensitivity and duration in the long end of the yield curve, on the belief that 20 years maturities were cheap relative to the front end of the yield curve,’ he said. ‘In hindsight, that position worked out pretty well.'
Fed vs ECB
Commenting on the end of QE, Taubes said this is the right time to stop the Federal Reserve's quantitative easing programme.
‘The US economy is not in a deleveraging mode anymore. Continuing QE would mean adding fuel to the fire,’ he said.
He also thinks that the Federal Reserve will raise interest rates mid next year. ‘The country's economy is showing positive signs. GDP and trade numbers are very promising.’
Meanwhile, on the other side on the Atlantic, Taubes believes problems in Europe are more pervasive. ‘The ECB shouldn’t have passively allowed its balance sheet to shrink in a deleveraging environment.’
He added the European central bank is not the only institution to blame. ’The whole region needs structural reforms to grow again and create some inflation.’
Taubes has recently sold his EU sovereign positions but maintained some corporate bonds, especially in the financial sector. The Strategic Income fund is currently overweight banks, as Taubes thinks they are well-capitalised and trade at an attractive valuation.
India might become the new China
With regards to the emerging markets, Taubes has a very security-specific approach.
‘We like countries with good growth potential such as Indonesia, Philippines and Mexico. We also look with interest at some Eastern European countries like Croatia, and some African countries such as Ghana and Nigeria.’
He also thinks that the best EM story in this environment is India. ‘The country has the potential to become a mini China story. Monetary policies have moved in a better direction and Modi will deliver some reforms.’
Over the three years to the end of September 2014, the Pioneer Strategic Income fund returned 21.27%, more than double the rise of its benchmark, the Barclays US Universal index, over the same period.