Jupiter Strategic Bond – A cautious approach

Joseph Hill | Tue 03 December 2019

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• Ariel Bezalel uses his views on the state of the economy to help him decide where to invest
• At least 70% of the fund will be invested in bonds bought and sold in British pounds or hedged back to Sterling
• The manager has a good record of investing in bond markets

Jupiter Strategic Bond is run by Ariel Bezalel, a talented and experienced bond manager. The fund features on our Wealth 50 list of what we believe are the best funds in each sector. The manager's calls on the economic outlook and ability to select successful bonds within certain sectors has added value for investors, although there's no guarantee this will be repeated as past performance isn’t a guide to the future.

Bezalel's willing to take more risks when he's positive on markets, at times he will invest in higher-risk areas like emerging markets and high-yield bonds. But when the outlook is more uncertain he adopts a more defensive approach and might invest more in government or higher quality corporate bonds in an effort to protect the portfolio from large drops in value. Overall, we think this means the fund could be a good option as part of an adventurous diversified portfolio.

How does the fund invest?

Bezalel analyses the state of the economy and uses this to help him decide where to invest. This involves him taking a view on which direction interest rates will move in developed markets to build up a picture of how the economy will develop.

Although the manager can invest in Bonds from around the world, at least 70% of the fund must be invested in bonds that are bought and sold in British pounds or hedged back to Sterling. He can also use derivatives which if used increases risk. Currently, around 48% of the fund is invested in bonds across the United States and the United Kingdom.

How’s the fund positioned?

The manager thinks it’s possible that over the next 18 months, Treasury yields in the US may follow the direction of yields in Europe and Japan and converge to zero.

He’s sceptical of the ability of China to once again provide the impetus for a re-acceleration of global growth and believes it will continue to slow.

As a result Bezalel thinks that low demand and stubbornly low inflation could be here to stay, something that could compound already weak investment spending.

Despite the manager’s cautious economic outlook, he continues to find new investment opportunities across the globe, and recently in the bonds of American and Brazilian pork producers.

The African swine flu epidemic has badly affected the pig population in China. In an attempt to control the spread of the disease, it is estimated that China has had to cull a third of their pig population. As the world’s largest pork producer, this has inevitably left a supply gap, which is estimated to be around 15% of total global production. The reduction in supply has also had the effect of driving pork prices higher, benefitting other major producers from around the world. The manager has taken this as an opportunity to invest in several global protein producers, including topping up a position in Brazil based company JBS.

How has the fund performed?

The fund’s strong performance over the last year has been driven by its investments in developed market government bonds, in particular those of the US and Australia. Its investments in US and Brazilian meat producers have also positively contributed to performance. Please remember that past performance isn’t a guide to the future.

Past performance is not a guide to the future. Source: Lipper IM to 30/11/2019

Outlook

Bezalel is cautious on the prospects for global growth and believes we’re nearing the end of the current economic cycle. He’s concerned that deteriorating manufacturing data is resulting in weakness in other areas of the economy such as the services sector. These can be warnings signs that there could be some tougher times ahead and usually when the economy shows further signs of weakness, central banks act to stimulate the economy.

As a result Bezalel thinks we could be in line for some more unconventional monetary policy such as further interest rate cuts and more aggressive quantitative easing from the US Federal Reserve, potentially pushing bond yields even lower.

Find out more about this fund including charges

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