(Bloomberg) — David Roberts, a bond market veteran who built several billion-dollar funds from scratch over the past 27 years, is cutting his retirement short and buying debt again. His approach is “No AT1s. No CCCs.””
The co-manager of Nedgroup Investments’ global strategic bond fund, launched formally on Tuesday, repeated his no-go areas multiple times during an phone interview with Bloomberg. For Roberts, who started managing money in the 1990s and spent 14 years at Aegon Asset Management, it’s about sticking to the basics, and avoiding near-default CCC-rated bonds and Additional Tier 1 notes — the riskiest type of bank debt.
“The current market looks like the boring market between 2000 and 2010, so buy as much as possible and just own it,” Roberts said. “You can get 5%-6% yields through the portfolio’s core foundation with a reasonable degree of certainty.”
His comments come after yields in safer parts of the bond market have risen in recent weeks, as investors moderate aggressive expectations of interest-rate cuts by central banks. High-grade corporate bonds globally pay just under 5%, which is about 1 percentage point below last year’s peak but above levels prevailing at the start of the year.
The Nedgroup portfolio comprises about 50% investment-grade bonds, around 30% sovereign debt and has some 15% invested in the highest-rated part of the junk bond market, Roberts said.
Roberts has made a comeback to the market after tentatively retiring in the summer of 2022, after more than four years as head of global bonds at Liontrust Asset Management. He’ll manage the fund jointly with ex-Artemis money manager Alexandra Ralph.
The areas that Nedgroup’s fund is avoiding could provide outsized gains for their high risk. An index of CCC-rated bonds — junk debt that is at high risk of default — returned about 18% in 2023, or about twice the return of high-grade company debt, based on data compiled by Bloomberg. Meanwhile AT1s have staged a comeback since $17 billion of Credit Suisse notes were wiped out a year ago.
Read more: Junk Bonds Stand Out Amid Losses for Global Fixed Income
Still, these risky notes are unlikely to enter the portfolio, which aims to beat the US dollar-hedged Bloomberg global aggregate total return index over rolling three-year periods.
“Given the opportunity in core fixed income, we want to focus on that part of the market and leave all the other stuff to the sexier mandates,” said Roberts. “We understand that we’re only part of client solutions. Some bond managers drifted so much that they tried to provide the entirety of the solution.”
(Updates with Roberts’ experience in first paragraph.)
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