HEAD-TO-HEAD: Bluebay vs Legg Mason

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Ashis Dash, Morningstar

Fixed income allocation has come to the forefront now that interest rates are increasing and inflation seems to be gaining momentum.

The environment has not been good for the asset class this year. As of the end of May, cash has outperformed all fixed income sub-asset classes, according to JP Morgan Asset Management’s guide to the markets.

The prospect of higher rates and rising inflation has made both private banks and fund managers prefer equities to fixed income.

For example, John Cappetta, head of managed product sales at Julius Baer in Singapore, advises clients to avoid adding more fixed income and hold more equity exposure instead.

Equities are also a preferred asset class for Hui Tan, managing director and Asia chief investment strategist at JP Morgan Asset Management.

However, Roger Bacon, head of investments for Asia-Pacific, contests the idea that all fixed income does poorly in a rising rate environment.

“We are educating clients on the facts behind fixed income sensitivity to rising rates.”

The sub-asset classes within the fixed income universe behave differently, according to Bacon. For example, senior loans are less sensitive to interest rate movements and provide higher returns with lower volatility.

“But if clients emphasise returns, then it’s still emerging market debt. For those that want defense, we look at global diversified government bond funds.”

Against this backdrop, FSA asked Morningstar’s Ashis Dash, London-based analyst for manager research for fixed income strategies, to compare two long-short fixed income funds: The Bluebay Investment Grade Absolute Return Bond Fund and the Legg Mason Western Asset Macro Opportunities Bond Fund.

Source: FE Analytics, Morningstar

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