Weaker economic data represented a ‘soft patch’, fund manager says

Weaker economic data represented a ‘soft patch’, fund manager says

05 July 2011 / by Paul Dicken

A stabilisation of weak global economic data suggests there has been a temporary slowdown in economic activity, rather than a lasting dip, manager of the Henderson Strategic Bond Fund has said.

John Pattullo, who manages the Strategic Bond Fund with Jenna Barnard at Henderson Global Investors, said he believed the market was broadly through this soft patch and was ‘fairly optimistic going forward’.

Pattullo attributed the weakness in global economic growth to a variety of factors, including weather, events in Japan and the sharp rise and subsequent fall that was seen in oil prices.

A move by the country members of the International Energy Agency to release oil reserves was seen as providing a boost to consumers in particular by helping to ease supply restrictions that had contributed to the spike in the price of oil.

Commenting on higher yielding bonds being issued, Patullo said the default environment for companies remained strong.

“We still like high yield [bonds], but selectively. We’ve only brought about 18 per cent of the issuance this year,” he said.

He said the fixed income team were very mindful of interest rate risk and were wary of holding sovereign (government issued) bonds as these are sensitive to changes in interest rates.

Interest rates

The European Central Bank has already raised interest rates for the eurozone countries this year by 0.25 per cent, and some analysts are expecting a further small rise in rates soon.

In the UK, however, the market has pushed back its predictions for incremental increases in interest rates.

Writing on 22 June, Michael Riddell a fixed income fund manager at M&G Investments said: “The markets are now pricing in a first rate hike in the UK for August 2012, which is quite incredible if you consider that back in January...the markets were pricing in three 0.25 per cent rate hikes this year along.”

While economists and analysts differ on when they believe interest rates will rise from the current 0.50 per cent level, the minutes from the Bank of England Monetary Policy Committee meeting suggested increased concern about sluggish economic growth.

The minutes, published on 22 June, said: “Most members judged that it was appropriate to maintain the current stance of monetary policy at this meeting. The current weakness of demand growth was likely to persist for longer than previously thought.”

Invest in the Henderson Strategic Bond Fund and a wide range of other investment funds for 0.00% initial charge »

No news, feature article or comment should be seen as a personal recommendation to invest. If you are in any doubt as to the suitability of a particular investment please contact us for advice.

The value of investments and income from them can fall as well as rise and you may not get back the full amount invested. Different types of investment carry different levels of risk and may not be suitable for all investors.

© Fair Investment Company Ltd