INVESCO Asset Management in London will shorten duration by a year if there is evidence of growth re-emerging in the U.S., according to Mark Dowding, head of global bonds in London and manager of the $400 million global fund. "This is a position we want to own but haven't implemented yet because the combination of slowing growth and rising inflation in the U.S. produces a very confusing macro backdrop," said Dowding. INVESCO's average duration currently mirrors that of the J.P. Morgan Global Government Bond Index at 5.5 years.
In addition, the fund manager intends to move into higher quality corporate bonds. "Depending on the particular fund that will mean selling triple-Bs and buying single-As, or selling single-As and buying double-As." He declined to quantify the shifts or specify company names, but did say telecommunications companies still offer good value. "We continue to see telcos as defensive, despite the spread tightening in the sector." The firm has a 25%-75% split between corporate and government bonds, down from the beginning of the year. Dowding does not plan to reduce the corporate bond allocation further, given strong corporate cash flows.
Dowding also favors emerging market corporates within the credit sector. "I would rather invest in bonds of an oil company in Kazakhstan than in General Motors at a similar spread," Dowding commented. Overall, Dowding said INVESCO is running very little risk in its fixed-income portfolios given the uncertainty regarding the Federal Reserve's stance on rate hikes. "We do believe the dollar will outperform in 2005--stronger U.S. growth could see the currency make a 5% or so move against the euro, from an exchange rate of 130 to 120," he predicted.
