Mike Riddell and Kacper Brzezniak, co-managers of the Allianz Strategic Bond Fund, on macro outlooks and market asymmetries
Economies around the world have been under attack from the coronavirus, governments have been exploring unconventional kinds of intervention, and volatile markets face an extended recovery period. That makes it a fascinating time to build macro outlooks say Mike Riddell and Kacper Brzezniak, who co-manage the Allianz Strategic Bond Fund.
Their fund, launched in 2016, focuses on global economics and the two managers develop views not only on the relative value of government and other bonds but also on the yield curve, currencies, inflation and other macro drivers across the world's markets.
In part, the fund was designed as a counterpoint to other strategic bond funds, which tend to invest heavily in corporate bonds. Credit-risky assets can behave rather like equities when the economic chips are down, says Riddell, reducing their portfolio diversification benefits for most investors.
The fact that many investors chased late-cycle credit assets into early 2020 represented the kind of asymmetric market skew that Riddell and Brzezniak like to hunt down. During 2019, being underweight corporate credit tended to lead to underperformance, "but not by a lot because the spreads were so tight," Brzezniak says, whereas any future forced selling of illiquid bonds offered the potential for big market moves.
"But remember what this is really about in the longer term," says Brzezniak. "If you are holding a multi-asset portfolio with equities, like most investors, owning fixed income has the potential to allow you to own more equities, which over the very long run is likely to be a good thing."
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