It’s been a long time coming but MFS Investment Management has started to market in Australia its 50-year-old fixed income suite of strategies. Bill Adams, the Boston-based global CIO for fixed income, made his first visit to Australia last week.
Best known in this region for its global and international equities, MFS has about US$80 billion across its range of fixed income products. Of its nine investment offices around the world three have fixed income capabilities.
While most of us enthusiastic amateurs think that interest rates will have to go up soon and therefore the asset class is not necessarily a good place to be, Adams, even more enthusiastically, disagrees.
“Duration doesn’t scare us,” he says of his global portfolios. “We don’t think interest rates will get away from us on the upside… The problem is investors avoiding the asset class at the moment, or chasing more risk [through credit and higher-yield sectors] … It’s unlikely we’ll get out of the 2 per cent world for a while.”
Internationally, MFS has spent the best part of the past two years engaging the marketplace in a dialogue about the fixed income sector, including currencies. The big manager has chosen to focus on the reason rates are where they are today and why they have persisted in being so low for so long.
“We are loud proponents of the ‘lower for longer’ theme,” Adams says. He clocks up his 20th anniversary in the MFS fixed income department this year. “At MFS, we are very deliberate and patient investors. We don’t just bring products off the shelf because they may be popular,” he says.
MFS questions the re-inflation story, which is linked to the new administration in the White House. It has been pushing back against that and is beginning to take some risk out of its fixed income portfolios because it believes good news has been fully priced by the markets.
“We’re not getting to where the new president might have aspired to,” he says of the stumbles in Donald Trump’s plans to get legislation through, or even introduced, in Congress. “The fixed income market can trend for a long time. We’d rather investors look at what we are doing on a long-term basis.”
Adams says that geopolitical risks around the world have been attracting a higher proportion of MFS’s attention recently. This is a reason investors should be considering global alternatives.
“At the core, you should do your fundamental analysis… Looking at fundamentals is always the best way to add alpha for investors over the long term.”
In emerging markets debt strategies, Adams says, the firm has observed an uptick in growth and kept its risk-on approach in its emerging markets portfolios for the time being.
“The need for alpha in a fixed income exposure has never been stronger,” he says. “If you look at skilled active managers, they earn their fees and then some.”
Greg Bright is publisher of Investor Strategy News (Australia)