Recent News

• Graham Glass appointed Lead Manager to widen fund’s scope into global credit
• Management style also shifts from ‘pure strategic’ to a benchmarked approach with strategic overlay
• New approach reflects excellent opportunities in global credit through 2012

City Financial, the London-based investment firm, has re-launched its Strategic Global Bond Fund to capitalise on the growing investment opportunities in global credit.

The fund, which previously invested only in sovereign debt, will now also provide exposure to corporate bonds at the hand of new Lead Manager, Graham Glass.

Glass, who has over 15 years’ experience managing fixed income assets with an emphasis on credit markets, currently works for Argyll Investment Services and has previously managed €30 billion of fixed income assets in the Paris office of Italian insurance giant, Assicurazioni Generali and formed a key part of the team managing credit exposure within the €350 billion public pension fund of Norway while at the asset management arm of the country’s central bank.

His approach for the City Financial Strategic Global Bond Fund, which was previously managed by Mark Astley of Millennium Global Investments, is to shift from a purely strategic allocation of assets to a blended approach that uses the Barclays Capital Global Aggregate Total Return Index (GBP Hedged) as an oversight for the fund while also incorporating a tactical allocation based on macro forecasts and outright market levels.

This combination means that while the index currently adopts a weighting in excess of 50 per cent to government debt, Glass is positioning the City Financial Strategic Global Bond Fund to have an exposure of just 20 per cent.

“The fund is well-positioned to capitalise on the last three years’ extraordinary volatility in credit markets which has left many bonds pricing in default rates that are quite simply irrational,” said Graham Glass.

“When one considers that investment grade corporate debt is pricing in one in every seven companies to go bankrupt in the next five years, one can see the potential value in today's corporate bond market. Even in the depths of a prolonged recession, the average five-year default rate only ever climbed to 1.55 per cent in 1938, as measured by Moody's. This is one of the reasons for the switch from a plain vanilla government bond fund into one where credit features strongly.”

Andrew Williams, Chief Executive Officer, City Financial, said: “The management of credit exposure requires specialist skills and Graham with his outstanding track-record, will give our clients just that. His success at Generali and Norges Bank is something that we look forward to replicating at City Financial – Graham is certainly one to watch in the coming years.”

Management responsibility for the City Financial Strategic Global Bond Fund was taken over by Graham Glass on 1 January 2012.

Grinding it out

The first estimates of second quarter UK GDP suggest that the economy virtually ground to a halt over the last three months, registering just 0.2% growth. With no weather to blame this time round, the finger was instead pointed at the extra bank holiday and, more justifiably, the fallout from events in Japan. Whatever the true figure is subsequently revised to, the medium term picture remains clear – an environment of low growth and volatile inflation. The huge debt burden weighing down on the UK economy mean this is likely to be the case for years to come. With the already overstretched consumer seeing their monthly pay packet go less and less far and government spending cuts having barely begun, it is too much to ask that business investment and exports pick up the slack.

This seems to be the view shared by the majority of the Bank of England’s Monetary Policy Committee (MPC), who recently conceded that there was ‘’ a reduced likelihood that a tightening in policy would be warranted in the near term’’. In reality we expect policy makers to continue to tolerate above target inflation and sit on their hands for the foreseeable future. Interest rates will stay on hold until at least this time next year, perhaps much longer. Further to this, additional stimulus in the form of further quantitative easing is now a realistic possibility. So what implications does this have on markets?

Long gone are the times when a UK GDP figure would have a material impact on equity markets. Over 70% of revenues for companies listed on the FTSE 100 come from outside the UK and further to this ability to increase efficiency or cut costs at a company level is equally as important as the underlying growth in the economy. There are plenty of parts of the world that are growing right now and companies that service such areas have never had it so good.