He suggests there is now a clearer idea that “not all bonds are equal”.
“You need lots of people to research credit and get their hands dirty,” he says. “That’s magnified just because of the sheer size of bond markets. They are big; they are about two-and-a-half times the size of equity markets. There’s no doubt in bits of the market there will be complacency, but the way you guard against that is this idea of getting your hands dirty and having people that do the credit work.”
While fixed income has had a remarkable run, there remain opportunities, with Mr Gartside highlighting the growth of bond markets as both good and bad. He notes some risks have been magnified by central banks’ action, with zero interest rates resulting in many negatively yielding bonds, leading to a shift in the way investors are accessing the larger bond universe.
He says: “When I first started, investors bought a bond benchmark – a bond fund married to a benchmark – and it worked pretty well. Today in many cases you could argue that bond benchmarks have a heck of a lot of risk embedded in them because the benchmark will contain many negatively yielding bonds.”
This has led to the creation of unconstrained, strategic or benchmark-unaware bond strategies. In turn, this has prompted a change in Mr Gartside’s investment process.
He says: “At one time everything was relative to a benchmark. You can think of that as sort of one dimensional investing. These days the portfolios I manage with others internally are those that don’t have benchmarks. You can think of those as being multidimensional.
“We want to get the best ideas; we don’t really care where they’re from as long as they’re good ideas. Obviously those ideas change – yields change as the fundamental factors change. Credits may get better or worse, and when that happens we’ll rotate the portfolio so it can look quite different from quarter to quarter.”
It may sound like a tricky task to overhaul a portfolio, especially those with a global focus. The CIO explains: “What you need for approaches like that is ideas. We have those ideas from a big team. If you think of bond markets in dollar terms, it’s about $100trn [£78trn] and it’s a very global market. We have about 200 people at the coalface researching bond markets and they do a lot of the day-to-day work in making a judgement on the underlying borrower.
