Bentham Asset Management has adopted a defensive stance as both inflation and rates appear to have peaked, according to deputy chief investment officer, Nik Persic.
Persic said the Australia-based fixed income manager has increased duration, improved credit quality and topped up cash holdings in its portfolios ahead of an anticipated economic downturn.
He said the rapid, synchronised central bank rate hikes should eventually flow through to the global economy after a “lull”.
“Our focus is the likely impact on economies,” Persic said. “We are positioned for growth coming off and higher recession risks with a view the inflation rally is over.”
The Australian credit specialist has a strong following in NZ, launching a portfolio investment entity (PIE) version its most popular strategy – the Global Income Fund – in April.
On a whistle-stop tour of NZ earlier this month, Persic said the pull-back in credit risk reflects the often non-linear impact of economic stress on debt markets.
“Spreads have widened a little but we still remain cautious,” he said, noting that when credit markets correct it “doesn’t always happen in a measured way”.
Bentham manages the risks primarily at the sector level, trimming exposure to high-yield debt and loans, for example, while adding to investment grade and cash.
The increase in cash will enable the fund to “take advantage of any market sell-offs”, Persic said.
And the Global Income Fund asset allocation has changed considerably since last year with the cash, derivatives and credit hedges exposure rising from 27 per cent in July 2022 to 44 per cent as at the end of this April.
Over the same period interest rate duration has blown out from almost 3.5 years last July to about 6.4 years in the April 2023 update; likewise, investment grade exposure moved from 64 per cent in July 2022 to 77 per cent nine months later.
But with no clear consensus yet on the likely duration of higher rates and inflation or the potential economic fallout, Persic said at least one thing is certain.
“Fixed income has become interesting for the first time in a long time.”
Bentham reported about $127 million in the NZ dollar-hedged Australian unit trust version of the Global Income Fund and a further $47 million in its other kiwi-hedged product, the Syndicated Loan Fund.
According to the latest fund update, the Global Income strategy has a yield-to-maturity of 8.3 per cent and a running yield of 9.8 per cent at the end of April compared to a just over 11 per cent and 9.1 per cent, respectively, for the loan product.
The manager registered the Global Income PIE in April under the aegis of hosting firm, FundRock NZ (previously, Implemented Investment Solutions) before formally opening the doors in May.