FUND MANAGER VIEWPOINT: EOINWALSH AND GARY KIRK OF TWENTYFOUR ASSET MANAGEMENT
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TO THE
INVESTOR
CENTRE
F
or much of the last quarter
of 2015, investors were
focused on whether the US
Federal Reserve would increase
interest rates, which it duly
did in December. Despite
warnings of chaos, the move
was received calmly amid
expectations that subsequent
increases will come slowly and
gradually.‘Divergence’ is now
the buzzword in financial
markets as the US tightening of
policy contrasts with continued
easing in Europe, Japan and
China.The outlook for China,
in particular, is the subject of
considerable debate as the
government continues its
efforts to rebalance the
economy away from exports
and investment towards
consumer-led growth.The
dislocation caused by this move
is one of the reasons
for the continued slide in the
price of oil and many other
commodities.
IN THIS SECTION
24 Viewpoint
Eoin Walsh and Gary Kirk, TwentyFour
26 Unit Trust Portfolios
28 Fund manager commentaries
24
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THE INVESTOR
What are thekey factors
influencing thefixed-interest
markets at themoment?
GARY KIRK:
The key issue that
dominated market sentiment throughout
2015 was when the US Federal Reserve
would hike rates.The US federal
funds rate had been at record lows for
seven years and it has been nine years
since it was last raised; nevertheless,
over the past few weeks markets had
very much priced in the recent increase.
The effect of the rates lift-off will impact
not just fixed-interest markets but also
foreign exchange markets, commodities,
global growth rates and investor sentiment
– this will become more evident over the
coming months. Of course, there are
other factors influencing fixed-interest
markets, primarily growth momentum
in China, where question marks over the
transparency of growth figures have
resulted in investors facing a greater
challenge in obtaining clarity on the
medium- and long-term outlook.The
slowdown in China is adding to the
decline in commodity prices which is, in
turn, having a big impact on exporting
countries, such as Russia and Brazil, as
well as on global inflation (some would
say deflation).The low oil price is
affecting US corporate high-yield
bonds, where some 15% of the key
high-yield index relates to companies
involved in oil and gas exploration
and extraction.
Viewpoint
EoinWalshandGaryKirkof
TwentyFourAssetManagement
The fund managers discuss the effects of the
US interest rate rise and look at where the best
market value can currently be found
Interest rates areexpected to rise
further in theUS thisyear and
begin toedgehigher in theUK.
Howwill that affect fixed-interest
markets?Howareyoupositioning
theportfolio for rate rises?
GK:
The current uncertainty has caused
increased volatility in fixed-interest
markets, but the end of the‘commodity
EOINWALSH
super cycle’ cannot be ignored.The
impact of rising rates is typically felt by
government and investment-grade bonds
first, while the initial impact on high-
yield markets can be more muted. But
this very much depends on whether the
increase in rates is perceived as a policy
error – in which case there would be an
expectation that growth rates would also
be negatively impacted; this would be
reflected in the high-yield markets. In the
portfolio, we manage our interest-rate
sensitivity closely to minimise the impact
of rate rises on the portfolio.One of the
tools we use is interest rate swaps, which
ensure that we have as much, or as little,
The rates lift-off
will impact foreign
exchange markets
