The ability of unconstrained fixed income managers to improve on conventional fixed income approaches, was challenged by Graham Ansell, general manager investment management, ANZ at the Fixed Income Forum in Melbourne.

In front of a large audience of fixed income portfolio managers, specialist consultants and fund managers, Ansell expressed concern that investors were at danger of adding too much extra risk for the return such funds would deliver.

Speaking several times from both the floor as a delegate and as panellist, Ansell said greater investigation should be made on whether the returns being achieved by unconstrained managers were made through a bias to structural credit, or through a genuine ability to pick interest rates, currency and credit.

“TSue Wang 400x200he vast majority of managers we have seen have managed to convince people that interest rates are going to go up and that is going to be bad for your portfolio, therefore you need to go to an unconstrained manager because you do not want to be locked into a conventional managers,” said Ansell. “But show me where the skill is. I have nothing against unconstrained investing as long as we can see the skills there, and does it offset the price you pay for it?”

He added that investors needed to be very clear what they were investing in. “Constraints on bond managers, like constraints on any manager, are not a bad thing; they ensure a level of desired quality, liquidity, duration and diversification in your portfolio.”

Ansell faced a challenge to his view from Sue Wang, principal at Mercer, who said that Mercer had too been sceptical of the first wave of unconstrained managers that emerged prior to the GFC.

The scepticism arose as many were funds created by houses with a tradition of taking a conventional approach to fixed income.

This position has changed, she said, as there was a growth in unconstrained products from fund managers that were absolute return specialists.

She added that Mercer’s requirement in unconstrained managers was for those that “live and breathe” the approach, that had strong conviction in their portfolios and could find opportunities “day and day out”, and did not reference benchmarks in any way.


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