We also see opportunities among floating rate assets (variable coupons linked to interest rates) and particularly in asset backed securities where higher volatility and comparative lack of liquidity is offset by higher yields. These instruments can be complex but we believe the likes of 24 Asset Management and SQN Asset Lease Finance have the expertise to navigate this space and allow us to gain exposure to this potentially attractive source of return.
We currently choose to blend these more ‘specialist’ opportunities with a collection of strategically managed vehicles. Understanding the talents of managers, their views and current positioning is key here as we look to combine individual funds into a more complementary whole. Just now, for example, we like the Janus Henderson Strategic Bond Fund’s nimble duration allocation and high-quality credit selection, Invesco Perpetual Tactical Bond Fund’s scope to move swiftly from a more defensive positioning and Legg Mason Macro Opportunities Fund – a fund run by a team with proven skill in responding well to changes in expectations in interest rates and the yield curve.
The last 10 years have been far from ‘normal’ but after such a prolonged period of stimulus many investors are seemingly finding it difficult to readjust their expectations. Investment has always been about judging the balance between potential rewards and risk but is also about assessing the full breadth of opportunities on offer. Flexibility is key. Currently, duration related risks are obviously a key consideration in certain markets but that doesn’t necessarily require a hunkering down in short duration assets yielding very little. Look further afield and you’ll find markets at a different stage of the cycle, and remember that volatility is ‘normal’, which in turn provides opportunity for the patient.