Allianz Strategic Bond

Managed by Mike Riddell, the positioning of Allianz Strategic bond fund is driven by the team’s macro view. Mike believes most strategic bond funds masquerade as high yield bond funds and, as a result, have a high correlation with equities. This fund is very different and is all about looking at the bigger picture. Mike is not afraid to radically alter the fund quickly and this flexibility allowed him to quickly re-position his fund going into - and during - the coronavirus crisis, delivering spectacular results.

Our opinion

This a flexible strategic bond fund managed by an experienced manager who helped design the fund before launch. What has been particularly pleasing is that as well as exhibiting strong performance, any drawdowns have so far been small. The fund has low correlation with equities and therefore is one of the few strategic bond funds to offer genuine diversification.

Company description

Allianz Global Investors is a subsidiary of Allianz SE, one of the largest and oldest financial groups in the world supporting more than 82 million clients. Allianz Global Investors employs over 2,700 people in 25 different locations and manages £450bn in assets for a mixture of both retail and institutional clients. It has over 750 investment professionals with expertise in equities, fixed income, multi-asset and alternative investments. Fixed income is the largest portion, accounting for about £170bn of assets under management. Allianz was awarded the Elite Provider for Equities rating in 2021.

Fund manager

Mike Riddell has around 20 years investment experience. Prior to joining Allianz in 2015 he worked at M&G for 12 years. At M&G he worked with highly regarded managers such as Elite Rated Richard Woolnough and Jim Leaviss. Before that he worked at Premier Asset Management and has a broad experience in UK, global and emerging market bonds. Mike graduated from Birmingham University with a BSc (Hons) in Money, Banking and Finance, and is a CFA charter holder.

Investment process

When Mike joined Allianz in 2015 he had a blank sheet of paper to design a new strategic bond fund. Mike believes that most strategic bonds funds don’t live up to their name - that is, they are not strategic and in practice they are really credit funds usually dominated by corporate and high yield bonds. As a result these funds having a very high correlation with equities. Whilst they claim to be able to do well in any environment, Mike says in practice they will only do well when risk assets are in favour.

So he set out to design a fund that would be genuinely strategic. It is designed to have a low correlation with equities, offering a genuine diversification benefit to investors. The primary focus of the fund is the macroeconomic environment and interest rates. Credit is still a potential opportunity for value but is secondary.

The fund’s process starts with the global macro outlook. This is constantly changing, as the world moves and investors’ perceptions change. The team builds it outlook from a combination of global economic research, leading indicators, technical and asset class views.

Investment screens then identify mispricing and potential opportunities. The macro views then feed into the fund positioning including: interest rate exposure: yield curve exposure; credit exposure; inflation exposure; currency exposure and volatility exposure.

The goal is to implement views through asymmetric investment opportunities where they can make a lot but will only lose a little. These opportunities tend to be most available at times of volatility or change. The team is patient and happy to wait until it has very high conviction.

Risk

The fund is high conviction and its positioning can change very quickly as is to be expected given its philosophy and strategic nature. It can invest in emerging market bond and can also use derivatives. The portfolio is monitored with an array of analytics and the fund is stress and scenario tested to check its risk/reward. Whilst the fund has traded sideways for long periods, thus far it has done an excellent job of capital preservation and whilst it has delivered some very high absolute returns, the size of drawdowns has been limited.

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