JP Morgan's Gartside set for 'classic' global bond conditions

Nick Gartside (pictured), a global strategic bond fund manager at JP Morgan Asset Management, thinks it will be another 10 years before Western economies become competitive again.

While equity markets contend with great risk and volatility, a Japan-style deleverage cycle offers ‘classic’ conditions for global bonds according to Gartside.

‘Bond investors have two big enemies; high interest rates and inflation. We are not really there at the moment with inflation and interest rates are going to be low for a very long time,’ he said.

‘The developed world has too much debt and we are in the midst of deleverage cycle. The road map is what happened in Japan and they did similar things, it takes a good decade to recover,’ he added.

Gartside’s outlook on the world was typically bearish for a bond manger in today’s climate, likening the eurozone to a ‘wobbly stool’.

One of the legs, he explained, was sovereign stress coming from debt financing costs.

The European banking sector was another liability, although he admitted the loan guarantees offered by the European Central Bank (ECB) had helped support both ‘legs’.

He warned investors against treating bonds as a homogenous asset class and said a global, diversified allocation is the key to strong risk-adjusted returns.

‘Our strategy is a total return strategy not an absolute return. For us minimising risk is very important as investors’ expectation is often that bonds are dull things, but they are very volatile,’ he said.

Gartside’s JPM Global Strategic Bond fund has its highest allocation to high yield debt, which makes up 35% and includes bonds issued by restaurants, casinos and even the rehabilitation clinic ‘The Priory’.