Specialist global bond fund manager, Cameron Hume, has been back in Australia for its regular quarterly visit and investment manager, Dr Kevin Kidney, spoke with YieldReport about the firm’s updated outlook.
The Edinburgh-based manager was slightly more optimistic on the global economy than it had been previously but it still holds its views on a number of global investment themes, including the poor inflation outlook for eurozone. Eurozone inflation expectations are at all-time lows and this view is still dominating investment outlooks according to Dr Kidney. Both the US Fed and the ECB would be troubled by this as it signals that disinflationary concerns are still foremost in investors’ investment strategies.
A number of Cameron Hume’s investment strategies relate to the ‘Japanification’ of Europe as the ECB fights to control a slow disinflationary spiral. Within the eurozone Dr Kidney noted numerous trading opportunities where countries such as Sweden and Switzerland were taking central bank action to keep their currencies competitive. These types of trades were being increasingly well received by Australian fixed income managers which largely had global index bond exposures but were looking to broaden their mandates to an active manager, he said.
Additionally his fund sought to capitalise on pricing distortions such as those that had arisen from ECB policy. This included situations where euro denominated yields of one company had been pushed too low because of ECB bond buying versus the same firm’s US dollar denominated debt. The firm was able to sell the euro debt and buy the US dollar debt with no effective additional credit risk.
On the US, Dr Kidney noted that the Fed was still anticipating up to eight rate rises between now and the end of 2018 as it attempts to ‘normalise’ interest rates. There is a distinct discord with the market view which is only pricing one rate hike over the same period. As YieldReport has previously noted markets have been questioning the ability of central banks to effect particular outcomes and this is increasingly evident in US market pricing. Dr Kidney commented that the Fed ‘dot plots’ were a useful tool for the Fed when markets were unstable back in 2011 as they offered sound guidance for markets. However, he thinks they may be increasingly unhelpful as the Fed attempts to normalise US rates.