Exploiting the Changing Bond Markets | Liontrust Sustainable Investment team | Liontrust Asset Management PLC

Exploiting the Changing Bond Markets

Liontrust Global Fixed Income

Liontrust Global Fixed Income team

After the decades long bull market for bonds, David Roberts, Phil Milburn and Donald Phillips of the Liontrust Global Fixed Income team argue that yields need to rise and will do so as quantitative easing (QE) is withdrawn. But with the long anticipated increase in volatility in global bond markets, the team believes there are myriad ways of exploiting this for the benefit of investors. Here are their views on the current environment:


    • Monetary cycles have desynchronised.

    • The “old normal” is returning.

    • Flexibility is key to investing in bond markets.

    • Investors should only buy bonds when they offer value.

    • The team believes investors who buy index relative or passive funds are taking around 50% more interest rate risk than they were in 2008 (at a time when most investors were terrified about bonds).

    • Investors need to manage the key components of risk -:
    • 1) When beta is expensive, avoid it.

      2) When volatility increases, exploit it.

      3) When reward justifies the risk, buy it.


How is the Liontrust Global Fixed Income team differentiated?

  • David Roberts, Phil Milburn and Donald Phillips have more than 60 years of combined investment experience and have all worked together before joining Liontrust at the start of 2018. David, Phil and Donald have long track records of managing bond funds.

  • Decision making within the team is streamlined because it consists of only three experienced managers. The team does not have an investment committee or analysts, resulting in a concentrated portfolio of the managers’ best ideas in bond markets.

  • The investment process is designed to be flexible to enable the fund managers to buy when bond markets are cheap and risk is underpriced and to sell when markets are expensive and risk is overpriced. The managers only commit cash to the market when they believe investors will receive a return that justifies the risk they are taking.

  • The fund managers seek to take advantage of market inefficiencies through understanding the economic environment, bottom up stock analysis and flexibility over duration, credit, sector and geographical allocations. They invest on the basis that value and fundamentals reassert themselves over time.

The Global Fixed Income team - David Roberts, Phil Milburn & Donald Phillips
Meet the experienced fund management team

David Roberts, Phil Milburn and Donald Phillips, who all joined Liontrust in early 2018, have more than 60 years of joint investment experience. Before joining Liontrust, David and Phil worked together at Kames Capital for 14 years, where David was Head of the Fixed Income team and Phil was Head of Investment Strategy. They launched one of the first strategic bond funds in 2003 and have been investing in high yield on a global basis since 2003. Donald was previously an investment manager in the Credit team at Baillie Gifford and worked with David and Phil at Kames Capital for three years from 2005 to 2008. He was co-manager of the Baillie Gifford High Yield Bond Fund from June 2010 to 2017 and the US High yield strategy.

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The Liontrust Global Fixed Income process

The fund managers believe fixed income markets are inefficient and there are myriad ways of adding value to investors’ portfolios. The inefficiencies are caused by many market protagonists who are not price sensitive, ranging from the macroeconomic distortions caused by central banks to the idiosyncratic scenarios when companies need to raise debt finance and price accordingly. The Liontrust Global Fixed Income investment process is designed to take advantage of these inefficiencies through a thorough understanding of the economic environment and detailed analysis of individual companies and bonds. The process uses the same framework to garner a thorough understanding of the economic environment and for company analysis: fundamentals, valuations and technicals (FVT). These three factors are examined regardless of what the managers are analysing, from a duration position to an investment in a speculative grade rated company.


In judging whether a company is an attractive long-term investment, the managers analyse the following factors, which they call PRISM:


Liontrust GFI PRISM  

Protections: operational and contractual, such as structure and covenants


Risks: credit, business and market


Interest cover: leverage and other key ratios


Sustainability: of cash flows and environmental, social and governance (ESG) factors


Motivations: of management and shareholders


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Recent insights from the team

Looking through a zombie apocalypse
Donald Phillips
With growing focus on the so-called ‘zombie’ end of the high yield market, kept alive by years of loose monetary policy, Donald Phillips considers the impact on the sector – and the opportunity – if these walking dead were wiped out. Read more
Ten trades to put a spring in your step
David Roberts
Ahead of the first anniversary of the Liontrust Strategic Bond and GF Strategic Bond Funds, David Roberts outlines 10 trades where he sees opportunities for investors over the coming months. Read more
This is what it sounds like when doves coo
Phil Milburn
Having warned of ‘screaming markets’ under over-zealous Fed tightening, Phil Milburn analyses the friendlier noises emanating from the newly dovish central bank and the opportunities in such an environment. Read more
Fed entering the danger zone
David Roberts
With further dovish noises from the Federal Reserve, David Roberts considers the possible consequences of kicking the policy normalisation can down the road. Read more

Further information

Key risks

Past performance is not a guide to future performance. Do remember that the value of an investment and the income generated from them can fall as well as rise and is not guaranteed, therefore, you may not get back the amount originally invested and potentially risk total loss of capital. Investment in Funds managed by the Global Fixed Income team involves foreign currencies and may be subject to fluctuations in value due to movements in exchange rates. The value of fixed income securities will fall if the issuer is unable to repay its debt or has its credit rating reduced. Generally, the higher the perceived credit risk of the issuer, the higher the rate of interest. Bond markets may be subject to reduced liquidity. The Funds may invest in emerging markets/soft currencies and in financial derivative instruments, both of which may have the effect of increasing volatility.
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