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What opportunities offers market volatility?

Oksana Patron11 August 2022
Leaves in the shape of a stock graph and arrow going up

Active management and a good interest rate strategy can pay off at times of market uncertainty, according to Bentham Asset Management.

The past 12 months turned out to be particularly positive for its Global Opportunities Fund which benefitted from rising interest rates being outright short interest rates.

“More recently, we moved to a long interest rate position once markets had more fully priced the future interest rate increases,” Richard Quin, Bentham’s Principal and chief investment officer, said.

According to him, some investors were concerned because they saw “some of the fastest increases in cash rates in history” while, he said, they should welcome the rate rises instead as they were normalising the markets after years of abnormally low rates, with potential returns expected to be higher.

Quin stressed credit market fundamentals remained sound, with credit ratings agencies forecasting default rates to remain well below historical averages in recession.

“We believe that the increase in credit spreads compensates for the increased risk of a slowdown. Credit markets are likely to provide favourable risk-adjusted returns over the next 12 months, particularly floating rate credit, despite the increased risk of higher government bond yields,” he noted.

On top of that, the war in Ukraine provided opportunities to invest in capital securities and energy exposures that experienced an unwarranted sell-off after the conflict started and these positions rebounded towards the end of the quarter.

The Bentham Global Opportunities Fund, which marked its five-year anniversary, offered a positive one year, two-year, three-year and five-year return to 30 June 2022, while offering diversified exposure to securities across global credit markets, with the flexibility to adapt its credit and cash exposure to suit market conditions across the credit cycle and deliver consistent levels of income, the company said.

 

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