He’s not alone as bond bears have underperformed this year, with even heavy hitters such as Dan Ivascyn’s Pimco Income Fund and Ray Dalio’s flagship investment losing out amid a global rally.
It’s not just sub-zero rates in Europe that are raising Eigen’s wariness. An automotive enthusiast with a penchant for fast Italian motorcycles, he takes his cues on the economy from customers at two commercial garages that he partly owns in central Massachusetts. Eigen’s not liking what he’s hearing as the 2020 presidential election draws near.
Nervous Customers
“I see some of our bigger buyers and the bigger customers getting really nervous,” he said. Elections “have become so polarized here in the U.S. that that can’t be good for confidence, and confidence drives the economy.”
The cocktail of risks is prompting Eigen to favor cash and highly liquid assets. His strategy, which can invest in or bet against almost anything in the fixed-income universe, has 21% parked in investment-grade corporate debt. He also favors non-agency mortgages.
Junk bonds now make up less than 5% of the fund from as high as 70% three years ago. While Eigen profited last year from shorting five-year German government debt, he’s not willing to repeat the wager today.
“My feeling is that rates can probably get a bit lower here in the U.S. and German rates will probably follow,” he said.
Even predictions of a further rally in U.S. Treasuries aren’t enough to whet his appetite. His portfolio is “about as defensively positioned as it’s ever been” and he’s building a war-chest of cash to deploy when bond markets sell off. And in the meantime, even if he loses out on some returns, he won’t be buying securities with negative yields.
“I won’t engage in that,” he said. “The day I buy a negative-yielding security is when I’m retired. I don’t do that for investors. If people want to lock in losses they can do it all by themselves.”
This article was provided by Bloomberg News.