This $12 Billion Manager Says It's Time to Sell Risky Assets

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Jupiter Asset Management’s Ariel Bezalel says it’s time to shun riskier assets and gird for world recession-like conditions.

The London-based head of strategy, fixed income, who manages $11.8 billion of debt, said he hasn’t been this cautious in five years for his Dynamic Bond fund. The “bounce” in high-yield assets over the last month or two represents a bear-market rally and he’s seeking shelter in safer assets such as 10, 20 and 30-year U.S. Treasuries, he said.

“It makes a lot sense to use the opportunity of a strong market environment to reduce risk -- simply put, it is ideal to sell high,” said Bezalel, whose $6.9 billion Dynamic Bond fund returned 1.4 percent in one month, beating 79 percent of its peers. The world is “swimming in too much debt,” particularly in Europe and the U.S., and China is unlikely to to be able loosen its policies enough to stimulate global markets, he said.

The risk of a global recession has topped the worry list for credit investors even as they reduce their cash balances to snap up new-year issuance, Bank of America Merrill Lynch’s latest survey of European money managers showed. Almost 30 percent of respondents to the bank’s poll cited a worldwide economic slump as their largest concern, the strongest consensus for any single risk since June 2017.

“Over the last year or so, we have been transitioning our fund to cope with more difficult periods,” said Bezalel. Historically, his Dynamic Bond fund had over 70 percent exposure to high-yield assets and “today we are down to about 20 percent,” he said, without giving more details.

Last month, the International Monetary Fund cut its forecast for the world economy, predicting it will grow at the weakest pace in three years in 2019 and warning that fresh trade tensions would spell further trouble. In its second downgrade in three months, the lender blamed softening demand across Europe and recent palpitations in financial markets.

“Risk assets are much more susceptible to drawdown should the economic fundamentals deteriorate and that is exactly what we believe we are witnessing,” he said. “Global growth estimates continue to be revised lower and the economic data has been extremely poor pretty much across the board and yet the equity and high yield markets are bouncing hard.”

The low interest rate environment is here to stay, Bezalel said, forecasting yields on 10-year U.S. Treasuries, which peaked in November at 3.24 percent, to slide further to 2 percent or even lower in the next 20 months.

Here are his other views on Asia’s credit markets:

• Bezalel has held back from buying Chinese government bonds as there could be a possible yuan devaluation down the line
• He likes Indian government bonds on “very attractive” yields and falling inflation
• Looks at Indonesia within the local currency space but is concerned about their high foreign ownership and likely reversal as global economic growth continues to abate
• In the hard currency space, he is looking at short-duration opportunities, such as Sri Lanka which has pre-funded the forthcoming maturities

To contact the reporter on this story: Annie Lee in Hong Kong at olee42@bloomberg.net

To contact the editors responsible for this story: Neha D'silva at ndsilva1@bloomberg.net, Chan Tien Hin, Lianting Tu

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