Jupiter Strategic Bond - more caution needed
Kate Marshall | Tue 28 August 2018
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- A flexible fund run by an experienced bond investor
- Ariel Bezalel is more cautious in his outlook for bond markets than he’s been in the past
- We trust him to make a sensible assessment of bond markets and invest the fund accordingly
Our view
The great thing about strategic bond funds is the flexibility they have. We like fund managers who use this flexibility to their advantage.
Ariel Bezalel is one of those managers. He’s willing to search for the best returns from across global bond markets for his Jupiter Strategic Bond Fund. He considers changes in the economy, such as growth, inflation and interest rates, and invests in different types of bond he thinks will benefit. This approach has worked well over the long term, though past success isn’t guaranteed to be repeated.
We hold Ariel Bezalel in high regard and think the fund deserves its place on the Wealth 150.
Strategic thinking
We recently met Ariel Bezalel to find out about his views on the bond markets.
Bonds have generally performed well over the past decade. But as bond prices have risen, yields have fallen. It doesn't leave much room for prices to rise, and yields to fall, much further.
The manager thinks returns from the bond markets could be lower than they’ve been in recent years. It's not that money can't be made, but he thinks returns from bonds are more likely to come in the form of income, rather than any significant capital growth.
He's more cautious than he's been in the past, so he’s invested more of the fund in government bonds. These are generally expected to hold up better than bonds issued by companies if bond markets run into trouble.
He's invested one quarter of the fund in US government bonds. The US Federal Reserve has already started to raise interest rates, and this is typically bad for bonds. But unlike most other people, he thinks the Fed will stop raising rates next year, especially because a lot of Americans are finding it harder to pay off their debts. And higher rates makes borrowing costs more expensive.
He also has concerns about Australia's economy. Consumer debt levels are very high, there's little wage growth, and the housing boom could be coming to an end. He says banks have lent money too easily to property buyers in the past. So it's not unusual for people to own more than one property in Australia, and they have a lot of money tied up in mortgages. Banks are now tightening their lending criteria, and any sign of falling house prices or rising interest rates could cause real problems.
Australian government bonds could be seen as a safe haven in times of trouble, so around 12% of the fund is invested here.
He also invests in some bonds issued by companies. He's focused on those that are financially strong and make enough cash to keep paying off their debts. This includes tech firm Apple and consumer goods company Procter & Gamble. He thinks these are more likely to provide some shelter in a weaker environment.
Fund performance
The fund has performed in line with the average fund in the IA £ Strategic Bond sector over the past year. Recently the fund’s investment in US government bonds held back performance, while investments in higher-risk, high yield and emerging markets bonds helped returns.
Longer-term performance has been strong, although this isn’t a guide to the future. We think Ariel Bezalel has been good at assessing what’s going on in the global economy and bond market environment, and identifying bonds that have gone on to perform well.
In the past he’s invested in areas overlooked by other investors. The fund has grown in size in recent years and this might limit his ability to invest a lot in niche areas in future. But he’s built a good investment team around him and this is still a highly flexible fund. We’re positive about its long-term prospects. Like all funds though the value will fall and rise, so you could get back less than you put in.
Jupiter Strategic Bond - 10 year performance
Past performance is not a guide to the future. Source: Lipper IM to 31/07/2018.
| Annual percentage growth | |||||
|---|---|---|---|---|---|
| July 2013 -
July 2014 |
July 2014 -
July 2015 |
July 2015 -
July 2016 |
July 2016 -
July 2017 |
July 2017 -
July 2018 | |
| Jupiter Strategic Bond | 8.4% | 2.1% | 5.0% | 4.5% | 0.1% |
| IA £ Strategic Bond | 5.8% | 3.0% | 4.8% | 4.6% | 0.1% |
Past performance is not a guide to the future. Source: Lipper IM to 31/07/2018
The fund can use derivatives which increases risk.
Please read the Key Features/ Key Investor Information in addition to the information above.