January 22, 2010 |
|Schroders bond manager Nick Gartside has been buying Greek bonds in the belief that European policymakers and the central bank will make sure the country sorts out its finances.|
Overall Gartside, who runs the Schroder ISF Global Bond and ISF Strategic Bond funds, is negative about European economies. 'When I look at European governments, I don't see a big engine of economic growth in these countries,' he said.
'In Europe, the one opportunity I see is Greece. We've been adding Greek debt. I view Europe as a political construct and if you take the view that I do, that Greece is not going to be pushed out of the European Union, then Greek bonds are cheap.'
The country is taking all the right measures to deal with its problems, Gartside believes, and the central bank will provide the necessary support. 'The ECB is helping them sort out the budgetary mess,' he pointed out. 'So I think Greek debt at these levels is cheap.'
Last year Gartside predicted that inflation would rise further and quicker than most people expected. He says the recent jump in UK inflation did not surprise him, although it did surprise the markets.
'Economists as a body have got a lot of explaining to do,' Gartside said. They have consistently got it wrong on inflation, he thinks. At the start of 2009, in the UK the average economist was predicting inflation would the year at around 0.5%, he said, while the actual figure turned out to 2.9%.
He also disputes the widely-held view that inflation will spike in the UK, then fall. The recent rise in inflation was caused by actual price rises, rather than any base effects or by the VAT increase back to 17.5%.
Those base effects and the VAT rise will kick in to keep the upward pressure on inflation, Gartside believes, and a further VAT rise is likely after the general election - regardless of who wins.
'Inflation will be sticking at the levels we're seeing now,' he says - he expects an average rate of around 3% for the coming year. 'That will suprise the Bank of England and it will surprise bond markets.'
Unimpressed as he is by most European countries, Gartside has been looking to developing regions for invetsment opportunties. 'I prefer debt from emerging market countries,' he says. 'In fact, you're likely to see a shortage of debt from emerging markets.'
He also likes emerging market currencies, listing the Mexcian peso, Egyptian pound, Indonesian rupiah and Malaysian ringgit among those he favours. 'We've been buying those versus the dollar,' he says.
Since Gartside took over the ISF Global Bond fund in 2008 it has returned 15%, while its BarCap Global Aggregate bond benchmark has risen 10.4%. The Strategic Bond fund, which is benchmarked against 3-month dollar Libor, has returned 13% since Gartside took over, while the average manager in the global bond sector has returned 9.7% over the same same period.