Good performance from intl bonds

International bonds aren’t a topic which gets talked about a whole heap, but they can provide good returns to a portfolio.

Tuesday, July 12th 2005, 7:01AM

Fischer Francis Trees and Watts manages $130 million in international bonds for Tyndall.

Fischer Francis managing director and co-chief investment officer Richard Williams says the returns will be a little lower this year than last year, and should be in the 10-12% range with the currency hedged. Tyndall Investment managing director Anthony Quirk says that while performance has been a little bit below budget, the returns have been generated with lower volatility than expected.

Quirk says that Fischer Francis have been a top quartile manager over one and three years and they have just reappointed the firm as its global bond manager for another three years.

Where are the returns?
In what is possibly an unusual scenario the portfolio is tilted to the max to one sector. Currently European bonds are the place to be, according to Williams.

He says the portfolio is invested “to the maximum we are allowed” to this sector.

With weaker than expected growth coming out of Europe and a failure for central banks and governments to work together there are expectations that interest rates will fall.

“We would expect European bonds to outperform,” he says. The portfolio is underweight to bonds in Japan and the United States.

An interesting observation Williams also made is that the good opportunities in the emerging markets sector are the countries a little like New Zealand. One which has an independent central bank and low inflation.

In this group are the likes of South Africa, Poland, Iceland and Hungary.

With such a big manager in New Zealand Good Returns thought it was worth asking Williams on his view on what our own Reserve Bank would do next.

While admitting he was not a total expert on our market, his view was that the OCR had reached its peak.

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