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Greece: how the experts are responding to the crisis
Fund managers are using different tactics to cope with the Greek debt crisis. The variety of their investment approaches depends on how their portfolios were positioned before the crisis re-emerged.
Fund managers are using different tactics to cope with the Greek debt crisis. The variety of their approaches depends on how their portfolios were positioned before the crisis re-emerged.
Twist: why Armstrong is betting on Greek bonds
Patrick Armstrong, managing partner at Armstrong Investment Managers, owns short-dated Greek bonds that are yielding 25% in his IM Distinction Diversified Real Return fund, which has returned 13.7% over the last year.
Armstrong's high-risk Greek strategy centres on what he thinks will happen: ‘a voluntary rollover to avoid a default event'. He will benefit from default avoidance because the short duration Greek bonds he owns will mature in March 2012 at which point the principal will be paid back: 'We expect no solution to Greek debt issues, but expect short-term stop gaps will see our bonds repaid in full before the inevitable default.’
He thinks this scenario is likely because he doesn’t think Europe could stomach the reality of the situation: ‘If Greece does default now, it will have a domino effect. Ireland and Portugal may also default and European banks do not have large capital buffers to offset a Greek default. For these reasons we are confident in a delay in the default.'
If the Greek crisis doesn’t play out as Armstrong expects he is shorting European banks to protect himself and make money from their share prices falling: ‘Should Greece default we expect a sell-off in banks.’ But this ‘hedge’ against a default could also pay off in what Armstrong describes as ‘the optimal scenario’ in which his bonds mature and the banks he is shorting take part in the voluntary rollover of Greek debts which would hurt their shares.
Hold: Hamilton hangs on to bank bonds
John Hamilton, head of the fixed interest team at Jupiter Asset Management and manager of the Jupiter Corporate Bond fund, said he wouldn’t be selling out of the bank bonds which make up nearly a quarter of his portfolio: ‘Banks have been rather soft recently because of all this (eurozone crisis) and because of the bank capital rules. So there’s been a softening on bank debt recently and it’s not always the right time to be shifting out of things.’
He said: ‘My personal view is that they will work out a way of postponing the problem so it is not a good time to be taking defensive action, with the market already worrying a lot.’
Hamilton’s fund has returned 27.4% over the last three years making it the 24th best performer in the 82-strong GBP corporate bond fund sector. His top three holdings are bonds issued by RBS, John Lewis and HSBC and he has 24% of his portfolio in financials.
Fold: why Miton is staying out of Europe...
Martin Gray folded on Europe some time ago and has very few euro-denominated assets in his CF Miton Special Situations Portfolio . The fund is in Citywire Selection, our pick of the best investment ideas and has returned 17.44% over three years – putting it at 19th out of 118 in the balanced managed sector.
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Look up the funds
- IM Distinction Diversified Real Return
- CF Miton Special Situations Portfolio A Acc
- Jupiter Corporate Bond
- Jupiter Merlin Growth Portfolio Acc
- Jupiter Merlin Balanced Portfolio Acc
- Trojan O Inc
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