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Kames’ Snowden hits out at ‘multi-asset’ corporate bond funds

Kames’ Snowden hits out at ‘multi-asset’ corporate bond funds

Kames’ AA-rated bond manager Stephen Snowden (pictured) has accused other funds in the IMA Corporate Bond sector of switching to a multi-asset approach, to try to improve performance.

‘We run a very plain vanilla investment grade bond fund, which is increasingly rare as liquidity drains away,’ Snowden said.

‘I think some funds have migrated over time to a multi-asset approach, and people bought these funds because they were bond funds.’

Snowden co-manages the £736 million Kames Capital Investment Grade Bond fund with Euan McNeil. It is top quartile in the sector over all time periods since launch in June 2006.

Snowden believes managers and investors have to accept that the asset class will not be popular all the time. ‘I don’t need to be relevant to everybody every day of the week. If fixed income is not popular for five years, it’s not popular for five years, but there will still be money in it.

‘I’m not going to start changing what we do to make it relevant to any market condition. As an asset manager, you have to accept you’re in vogue or you’re not,’ he said.

Furthermore, the strengthening global economy means the nature of the sector is changing, with less divergence between best and worst performers, Snowden argued.

‘Because we are not going to have these huge macro swings in credit spreads, it’s going to be much more about managing individual stock risk. I think there will be a very narrow range between top and bottom quartile, and stock selection will be the main differentiator,’ he said.

The manager also co-runs the £267 million Absolute Return Bond fund alongside Colin Finlayson, which was launched in September 2011.

While the fund is not aimed at investors seeking a yield, it is uncorrelated with other markets. Snowden said the most common question he faces is ‘how will this fund perform in a Lehmans-style meltdown?’

‘We are not going down when everyone else goes down. To my mind, that should be the purpose of an absolute return fund,’ he said.

The fund is currently shorting mining company Anglo-American debt, in favour of a long position in Glencore Xstrata credit, because Snowden feels both have been mispriced by the market.

‘Glencore Xstrata trades cheaper than Anglo American and I think that is wrong. Glencore Xstrata is a bigger, more diversified business than it has been. Anglo American has had problems in South Africa so I think it’s too expensive. Those valuations should flip over.’

He is also pair-trading government bonds, with a long position on bunds and a short on Treasuries, as he feels interest rates won’t rise any time soon in the eurozone, but are set to rise in the US.

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Colin Finlayson
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8/11 in Bonds - Absolute Return GBP (Performance over 3 years) Average Total Return: 3.12%
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20/70 in Bonds - Sterling Corporate Bond (Performance over 3 years) Average Total Return: 13.99%
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