BIAM has a total of €56 billion in assets under management. It manages about €7.5 billion in fixed income assets, holding the full gamut of bonds: government and corporate, domestic and international. Its fixed-income funds include a eurozone government and non-government bond funds and a eurozone non-government bond fund, which was established in 2003.
O’Leary explained why the latter fund was set up: “Since the introduction of the euro, European fixed income has increasingly moved towards a bigger, more diverse corporate bond market, which is dynamic and growing so fund managers have to be able to manage that asset just like property or equities.”
Investment philosophy
BIAM is an active fund manager, according to O’Leary. “We take views based on our judgment which differs significantly in some cases against the underlying benchmark index,” he said. When it comes to bonds, the company also takes a strong stance.
“We take views on what is going on in the world regarding inflation and interest rates. If you are bullish on economic growth and the corporate sector in general, then you are more inclined to add risk to the portfolio and vice versa,” said O’Leary.
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Performance
“This year, bonds have performed better than equities,” said O’Leary. “The Merrill Lynch eurozone government bond index is up nearly 4% but the DJ Eurostoxx 50 is down 1%.
In 2003, the BIAM eurozone non- government bond fund was up 6.22%, compared with 5.44% for the equivalent Merrill Lynch index. This year, the BIAM fund is up 3.04%, and the Merrill Lynch index, is up 2.94%.
Buying and selling
Against signs of global economic recovery and the gradual upward movement of interest rates, O’Leary said that bond markets are unlikely to produce spectacular returns over the next year.
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“Bonds are likely to be less attractive so we would want to reduce interest rate risk in our bond funds,” he said.
“The simplest way to do that is to reduce volatility in the funds and the easiest way to do that is by selling bonds of longer duration and buying bonds of shorter duration.”
Outlook
“Credit markets performed exceptionally well in 2003 and 2004, as they benefited from the economic recovery and improvements in profits,” O’Leary said. “To a large extent valuations now fully price in that recovery and, while we are not concerned about them, we would not expect credit markets to provide the same returns relative to government bonds over the next 12 months.”
Kathy Foley