With a balanced performance since the beginning of 2020, Jupiter Dynamic Bond has confirmed its attractive status in the field of flexible and globally diversified bond funds. However, according to its manager, it is still too early to raise the portfolio’s risk level.
Jupiter Asset Management is a UK manager with assets under management in excess of €50 billion. Its flagship product is undoubtedly Jupiter Dynamic Bond (ISIN: LU0853555380), a product with assets under management of over €7 billion. The funds sports five stars from Morningstar and a Silver rating.
The objective of this strategy is to offer an attractive return (between 3.5 and 4% distributed annually or quarterly) with minimal risk-taking and good protection during correction phases. This strategy has once again demonstrated its relevance during the periods of high volatility at the beginning of the year, with an overall performance of zero this year, despite the market correction in March.
Ariel Bezalel (fund manager) emphasises that the objective of the strategy will be to pay continuous attention to the level of risk in the portfolio, with the possibility of moving across all bond asset classes depending on market circumstances. At the beginning of the year, the management team expected slower growth in all major regions, with a level of risk that was deemed “high” in bond markets.
Government bonds
‘As a result, we had a high exposure (40%) to government bonds from developed countries which still offered the potential for spread compression, especially in the US and Australia, with a long duration. This positioning largely served us well even though all bond asset classes suffered during the market correction.’
At the same time, private sector debt had risen sharply in recent years, leaving many companies vulnerable to a crisis. ‘The fund had taken a hedge against the downturn in the US and European hig-yield markets of 10% of the portfolio, which also helped performance as these segments were the most affected by the correction.’
Opportunities
In recent weeks, bond markets have corrected significantly, and credit spreads have risen to attractive levels, particularly in light of the policy response that has been strong in both monetary and fiscal terms. ‘We believe that the political authorities will at all costs avoid an explosion of default risk, which is positive for the credit market,’ says Bezalel.
The fund took the opportunity to return to investment-grade corporate credit, increasing exposure to names such as AB Inbev, Teva and McDonalds. ‘We took advantage of the liquidation that took place in the markets and we were also active in the primary market, given the more attractive terms that were offered by issuers.’
Economic crisis
However, the fund remains defensively positioned, with still 40% of assets under management in government debt of developed countries. ‘We are not immune to continued volatility in the bond markets until the pandemic is brought under control, and we are unlikely to see a rapid recovery in economic growth given the number of people who have been put out of work in recent weeks,’ says Bezalel.
Following the removal of the high-yield hedge, the net position in this segment now exceeds 30% of assets under management. ‘In corporate debt, we like to play on attractive themes and strong convictions, always with the same philosophy of going where the opportunities are. In the current circumstances, however, it is difficult to envisage us being much more aggressive in the riskier areas of the market.’