Top bond manager slams ‘ridiculous’ short-term attitudes

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Muzinich bond manager Tatjana Greil-Castro has hit out at the short-sighted nature of investors which has led to major investment opportunities being lost or ignored.

In a strongly worded market commentary, Greil-Castro, who runs a euro high yield and short term bond funds, said investors are no longer able to stomach even minor discomfort due to a barrage of negative news flows.

‘There is continuing concern about what’s going on in Europe – and globally - but it’s becoming a little bit ridiculous.'

'There is so much focus on volatility and people wanting to preserve their capital in the short-term that investment opportunities are being lost or ignored,’ said Greil-Castro, who runs the Muzinich Enhanced Yield Short Term - one of the top performing funds in its sector - and the Muzinich Europe Yield funds.

She offered a similar declaration last month claiming risk aversion was causing investors to avoid any names with peripheral European ties and she believes this practice has now worsened.

‘Whether it’s the French elections or the Netherlands budget, or whatever comes next, markets and investors have lost their sense of perspective. They have become so risk averse that they are ultimately losing out.’

This heightened risk aversion is leading managers to huddle around a number of fixed income names, which will protect against a shortfall but offers little chance of long-term outperformance, Greil-Castro said.

‘Why hold a two-year German Bund yielding 12 basis points when you can own a two-year Italian government bond yielding 3.3%? Is Italy really going to default within the next two years?’ she said.

‘People are forgoing investment return for short-term capital preservation. It is short-sighted and not in investors’ interests. Professional investors seem to be scared of having to go out to clients and say ‘you were down over the past couple of months’. But the time horizon should be much longer than that.’

Impact on high yield

Discussing her own portfolio, Greil-Castro said there is likely to be further volatility in the short-term but she expects the asset class to deliver double digit returns this year.

‘When you get risk-off periods, high yield will sell-off, that tends to be the nature of it, but you should not be concerned about what will happen in the next two months. What will happen in the next two years is more important and on that basis there are strong fundamental reasons to like high yield,’ she said.

‘Many corporates remain in a solid financial position, with strong balance sheets and little refinancing risk. With economic growth looking sluggish at best, high yield is in a strong position.’

Over the past three years the €485 million Muzinich Enhanced Yield Short Term fund has returned 26.91%. This is while its benchmark, the Citigroup EuroBIG TR has risen 15.57%.

During the same period, her Muzinich Europe Yield fund has posted returns of 69.6% while its Citywire benchmark, BofA Merrill Lynch Euro HY Constrain TR, has risen 107.1% in euro terms.