Gross, Goldman
Bill Gross’s Janus Henderson Global Unconstrained Bond Fund has been battered this year betting that German bund yields will catch up with Treasuries. Instead they are the farthest apart in almost three decades, with bunds anchored by rising political risks and a downward reassessment of European Central Bank rate hike expectations.
A spokeswoman for the fund didn’t respond to e-mailed requests for comment.
“Getting duration calls right consistently is difficult in the fixed income world,” said Ashis Dash, who researches fixed-income funds as an associate director at Morningstar. “One has to time it well to make money out of it.”
Goldman Sachs AM’s $4 billion Strategic Income Fund has underperformed all peers in the past month, according to Bloomberg data, despite marketing itself as a portfolio that can “potentially gain in any rate environment.” While the fund’s short positions on U.S. rates was a plus for performance in May, it was pulled down by its exposure to emerging-market bonds.
Iain Lindsay, the firm’s co-head of fixed-income portfolio management, said competing pressures from robust U.S. growth on one hand and trade tensions on the other underscore the need for a “dynamic approach” to duration management.
The Street
The buyside is hardly alone in having been caught out by the shifting narrative on growth and risks -- many Wall Street strategists have been dialing back their forecasts. Analysts at JPMorgan Chase & Co. admitted in a recent research note that they have been too bullish on corporate and emerging-market debt.
It’s not game over for the funds that have staked money on the big growth bet. There’s still plenty of scope for a reversion in markets back to the position they were in at the beginning of the year, while the seeds have been planted for a durable resurgence in trend inflation in the U.S. and Europe. The IMF projects the global economy will grow 3.9 percent this year and next, the fastest pace since 2011.
All the same, one estimate of the term premium, the extra compensation to hold longer-maturity U.S. bonds over short-term securities, remains in negative territory.
“It’s hard to imagine that some of these big positional bets are really going to pay off if yields don’t end higher than where they peaked this year,” said Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets Corp.
This article was provided by Bloomberg News.