Barings' Colin Harte believes the currency overlay on his Global Bond Trust offers investors greater ...
Barings' Colin Harte believes the currency overlay on his Global Bond Trust offers investors greater returns than simply managing interest rate risk.
He says while many global bond managers focus on interest rate risk, Harte's diversified approach to selecting global government bonds, in addition to actively managing currency exposure will generate returns even in the most challenging of environments.
Harte says for many investors, the risks of investing in corporate bonds are too similar to the risks associated with equities.
He says: "Seeking returns from currency management as well as bonds means the trust currently has a correlation of just 0.7 with the global bond sector.
"The correlation between the trust and sector varies, but the trust always offers a valuable degree of diversification, making it a potentially attractive complement to an existing fixed income portfolio."
Harte is currently very underweight UK gilts, expecting an inflation shock in the medium term, favouring inflation-protected securities in the US and German bonds.
With an emphasis on preserving capital, Harte is currently benefiting from currency plays.
"We are cautious on the US dollar and yen, expecting the Australian dollar, Norwegian krone, Swedish krona, Canadian dollar and sterling to appreciate against them in response to these currencies becoming relatively cheap in purchasing power parity terms.
"They have also already discounted a huge amount of bad news. "
Baring Global Bond Trust is currently returning 28% over 12 months to 18 May, against its IMA Global Bond sector average of 11.8%, according to Morningstar.
