Flexibility to manage risk puts Janus Henderson ahead in 2022

Staff Writer

Financial Newswire

28 September 2022

Flexibility to manage both interest rate and credit risk helped the Janus Henderson Tactical Income Fund weather this year’s perfect storm for bonds and take out the 2022 Financial Newswire-SQM Research Fund Manager of the Year Australian Fixed Income award.

After years of record-low bond yields around the world from unconventional central bank policies such as quantitative easing, rising inflation rattled fixed income investors into 2022 and Australian bonds posted their worst annual return in decades.

Jay Sivapalan, Head of Australian Fixed Interest at Janus Henderson, said the fund’s tactical investment approach offered “full flexibility in managing both interest rate risk and credit risk” which steered it through the “GFC moment” in fixed income.

“We actually came into 2022 with virtually no interest rate risk and having our largest amount of credit protection in the portfolio that we’ve ever held in the history of the fund,” Sivapalan said.  “These two big levers really helped cushion the returns of the fund, so peak to trough fell something like 3.8% and has since recovered most of that return.”

In terms of finding value, he said the fund had targeted the two to four year part of the yield curve, in particular through the swap market.

It has also been adding high quality credit in Australia’s big banks, universities, ports, and toll roads.

The Tactical Income Fund’s diversified portfolio of mostly Australian fixed interest, cash and higher yielding securities was set up in the aftermath of the global financial crisis (GFC) and was designed to perform well in all stages of the interest rate and credit cycle.

“What investors have found attractive about the product over the last 13 years, and the something like 2,000 advisers who use it, is they get to outsource the professional management to an active manager like us, because we are in the market day in day out with that full flexibility, and a real focus on capital preservation,” Sivapalan said.

“And it’s very well suited to the times and the environment that we have at the moment.”

Even so, he said “this is not a time to buy something and put it in the bottom drawer and sit back, it’s a time to be quite judicious about exposures in fixed interest portfolios”.

Runner-up for the award in the Australian Fixed Income category is the Pendal Dynamic Income fund, which uses different levers such as duration to navigate market cycles.

Pendal Group’s Head of Income Strategies Amy Xie Patrick said unlike traditional income funds, theirs is not tied to the benchmark Australian composite index, which currently has a duration around five years.

“The Dynamic Income fund can be at zero (duration), and it has basically hugged that zero end of its range for most of 2022,” she said.

“But it can go all the way out to seven years, which is longer than your typical fixed interest fund would be able to do if it’s tied to the benchmark composite index, so that’s one key lever and one major point of flexibility that differentiates our portfolio. Across most of our peers, their active duration levers are probably at the two to three year mark – nowhere near the zero to seven year mark that we have.”

Xie Patrick said they also invested in emerging market sovereign debt where they prioritized liquidity, another key lever which meant they could diversify income but also quickly and cost effectively exit such riskier parts of the portfolio if markets suddenly turned hostile.