The Daily Interview: The bond man who excelled in the credit crunch

Across the board, the last year has reshuffled the relative performance of top performing managers, throwing up some anomalies, some compelling stories and a lot of unknowns.

Peter Harvey of the Cazenove Strategic Bond fund, currently number one in the UK Other Bond sector probably fits the latter two classifications quite neatly.

Harvey has come from nowhere over the past year to dominate the pack on a fund little more than two years old, offering 2% over the past year versus a peer return of -3.70%.

The fund got off to a slow start in life, underperforming the market for the first year, but has compensated with a rapid acceleration away from the crowd in the last six months.

Harvey took an early call on the leverage evident in the global economy, avoiding bank perpetual bonds and keeping the average maturation date in the fund to two years.

He has kept the discipline on perpetual bonds – ‘I don’t think people realise how real is the risk you won’t get your money back,’ he said, but has moved to an average four year lifespan.

‘It started as a way to protect capital. Ten-year corporate bonds move up and down by 10% within a year but one to two years will move very little.’

The fund has moved back into standard bank paper however, with calls on Alliance & Leicester and Bear Stearns ahead of their respective takeovers offering a windfall.

He is currently running a 20% weighting to finance with both RBS and Lloyds achieved by some re-allocation and a decisive move away from a previously high cash holding.

Traditional long-only managers have a lot of scope to exploit the unwinding of assets among investment banks and hedge funds he believes, as they liquidate debt positions.

‘It is possible to buy cash generative paper like two-year Rio Tinto bonds at 7% without to much trouble. It is possible to buy at that price because capital markets and credit banks are offloading risk.

‘Hedge funds are panicking, investment banks are panicking, and traditional managers are well placed to pick that up. It is a really good entry point to the market.’