Ariel Bezalel (London, 1975) is one of the best-known fixed income managers in Europe, at the helm of the Jupiter Dynamic Bonds Fund, which invests in bonds around the world in a very flexible manner. With his team, Bezalel manages assets of over 10.7 billion euros. The manager now prefers US or New Zealand bonds instead of Europe. His main holding is high-yield corporate bonds. Among his biggest concerns is a slowdown in the economy after a year of strong interest rate hikes.
What are the latest movements in the portfolio of funds you manage?
We are increasing exposure to sovereign debt. Although it looks like a significant economic slowdown is on the way in the second half, we see inflation also set to decline sharply. We are also increasing the tenure of the bonds in the portfolio.
And what positions are they selling at?
We are selling part of the corporate loan portfolio, although it remains our core asset. In particular, we are liquidating some bonds from cyclical companies, which may be more impacted in the context of an economic downturn.
In sovereign debt, why do you have so little exposure to European bonds?
We are invested in countries that are ahead in the monetary policy cycle, such as the United States, New Zealand or South Korea. The Federal Reserve, for example, we believe that it will begin to reduce interest rates already at the end of this year. The offset with respect to Europe is more than six months.
Isn’t it too early to think that rates in the United States are going to fall so soon?
This is what the market is discounting and we are in agreement with the consensus on this point. We believe inflation will soon correct itself, and there are already signs of cooling in the labor market and economy, which will cause the Federal Reserve to lower rates. In a few months, the major problem will not be prices, but an economic slowdown. Unfortunately, the best medicine to reduce inflation is economic slowdown.
When do you think it might be interesting to invest in European fixed income?
We see more opportunities arising in this type of asset in the second half of the year.
He has Greek bonds in his sovereign debt portfolio…
Yes, the country is playing a leading role in the macroeconomic success story. We find that the high returns offered by this type of asset more than compensate for the risk we take. Greece had to go through a very difficult process of restructuring, but now all the efforts are starting to pay off.
In the corporate fixed income space, do you also invest in Bank Convertible Contingent Bonds (Coconuts)?
Yes, it has been a very attractive and very profitable asset. It is true that Credit Suisse’s coconut role in the bank’s rescue has led to some delicate moments in the market, but those moments of tension have passed. European banking is in very good health. Our portfolio has cores from BBVA, HSBC and Barclays. In general, we see that the sector is very well capitalised. What happened with Credit Suisse was a one-off incident.
Those who were invested in fixed income faced a sharp decline in the value of their assets in 2022, as well as participants of the Jupiter Dynamic Bond Fund. When will they get back the legacy they had at the end of 2021?
Indeed, the last year was a tough one and the fund posted a negative return of -16.5%. But now we have been able to review the portfolio and we are rapidly making up lost ground. So far this year, we have gained about 4%. I hope that by next year we can already return to the high of 2021. Bonds are now offering very attractive returns and we believe they are now an essential asset in your portfolio.
What is the degree of portfolio turnover?
Really little. less than once a year. We leave the bond in the fund for the long term. In terms of duration, the bonds in our portfolio mature in an average of 7.35 years.
So, why don’t you invest in short term debt even though it is now offering higher returns than long term debt?
Yes, we prefer long term government debt. In fact, our portfolio has never had such a long duration before. We have also bought issues from USA, Australia, New Zealand for more than 20 years. Recently from UK.
How will future rate cuts affect your portfolio?
We believe we are very well prepared. As a starting point, we have a portfolio of bonds with a coupon of 6.5%. In addition, we believe that our assets have reappraisal potential. So we expect the year to end with more than 10 per cent returns. And we hope that this will also extend till 2024.
How do you see the macroeconomic situation in Spain?
We see that inflation has reached an all-time high in the euro area as a whole, and in Spain in particular its growth is getting better than in other countries. The condition of the banking sector is very strong. Lastly, you will be affected by the global economic downturn, but we think you are well positioned for what lies ahead.
Do you rule out a new debt crisis in the euro zone?
What happened then was that the global financial system was frozen with tremendous consequences. Now the condition of the bank is much better. We don’t think there will be a serious banking crisis, just a mild traditional recession.
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