Bonds: a tactical 2014

5 December 2013

“Focused on finally putting the post-Lehman era behind them, markets are undergoing a very delicate transition, as they fearfully struggle to cut the “ombelical cord” of cash from central banks and take their first small steps in the real world,” remarked Rocco Bove, a member of Kairos Partners’ management team, describing this year of transition for the bond world, as it shifts from the post-Lehman era to a new scenario in which we can once again believe in growth and the generation of profits as the source of asset revaluation. These are the first few “supported” steps, as he calls them, “with the safety net laid by central banks, which will likely remain effective and in place. As short-term rates are expected remain low, it will be difficult to achieve real positive returns: the challenge for the next three years for bond market players will be to preserve the purchasing power of capital. In a context like this, it will be even more important for managers to maintain a dynamic and flexible approach to this asset class, and the active management of interest rate risk and, accordingly, duration exposure, will be crucial.

Changes will be very closely monitored, in part because, after two years of playing on the offensive, the strategy has now changed: “We will resume a more tactical approach with the ability to ‘hide’ when necessary.”

These are dynamics that Bove knows well, as can be seen by the results of, among others, the Bond Plus SICAV, which posted a positive performance of 0.46% in November.  “Since the start of the year,” noted Bove, “net performance is 5.185% and since the fund was launched (November 2011) we have just reached over 25%”.