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Looming ‘ketchup moment’ for inflation spurs flight from credit

Aidan Kearney, co-manager of Aberdeen’s multi-manager funds, explains why he fears the inflation genie and the ‘ketchup moment’ when it leaves the bottle.

 
Looming ‘ketchup moment’ for inflation spurs flight from credit

Aidan Kearney, co-manager of Aberdeen’s multi-manager funds, explains why he fears the inflation genie and the ‘ketchup moment’ when it leaves the bottle.

Aidan Kearney, co-manager of the Aberdeen multi-manager funds, is planning to reduce his exposure to credit. The Bank of England’s policies had been inflationary, he said, and his team needed to assess the risk element of the portfolio in fixed interest.

‘[In this situation] you want to have a real asset, not a monetary asset,’ he said. ‘So much money is being printed. Mark Carney is talking about nominal gross domestic product (GDP) rather than inflation targeting. The inflation genie has not come out of the bottle yet. It is the ketchup moment – when it finally comes out, it will be very hard to stop it.’

This has led Kearney to reconsider his use of raw credit funds. For example, his flagship £308 million Aberdeen Multi-Manager Cautious Managed portfolio has a 6% holding in the Bluebay Investment Grade Bond fund and 4% in the Invesco Sterling Bond fund, run by Michael Matthews.

Rivalry in Henley

‘We went into [Invesco Sterling Bond ] when it was less than £100 million, when everyone was buying the two Pauls [Paul Causer and Paul Read of Invesco Perpetual] out in Henley, and yet there was a guy on the team who had worked for 15 years running a Sicav in Luxemburg, which no-one was buying,’ he said. ‘We bought that and he was massively incentivised to beat them. Why? Because he just wanted to. And he did.’

Kearney said Matthews’ fund was the most punchy credit fund he held, tilted to financials, and had performed well, having gone up 19% last year.

‘You are getting a decent, solid coupon paid in aggregate by corporates that are capable of making the payments on time with low default rates,’ he said. ‘But if everyone wants to sell it, who wants to buy it?’

US prospects

Kearney is interested in investing in the US. ‘There is a high degree of optimism that the US has found sustainable recovery,’ he said. ‘The housing recovery is now sound, along with the embedded strength of the corporate balance sheets.’

His largest and only US holding in the Cautious Managed portfolio is a 6.7% allocation to James Findlay and Charles Parker’s soft-closed Findlay Park American fund.

‘It has had as high as 20% cash, and they invest in Latin America via an internal fund, which gives a little bit of bite,’ said Kearney.

Across his multi-manager funds, Kearney invests in Brown Advisory, US growth managers Montag & Caldwell and the Threadneedle American Extended Alpha fund. ‘Sterling is getting a pasting and the dollar looks like a good place to be,’ said Kearney. ‘In aggregate we like the US.’

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