Kairos’ take on bonds

5 August 2014

The quantitative easing policies currently starring in the strategies of major central banks worldwide have been having, and will continue to have, a determinant impact on financial market performance. Massive liquidity, combined with a situation of substantial financial repression, is giving rise to trends and prospects that are very much on Kairos managers’ radar and which they are carefully considering as they work out the company’s investment fund management strategies.

Vittorio Fontanesi, who personally manages bond funds, notes “For KIS Bond, we have minimized portfolio movements and in the first half of the year we started accumulating floating-rate and inflation-linked bonds. This strategy has a relatively low cost and gives us more peace of mind in terms of interest rate risk.”

It follows that if this is the right approach for a fund like KIS Bond, which seeks to contain volatility while maintaining consistent returns, the management strategy for KIS Bond Plus is different, as the fund is aimed at performing well regardless of market conditions. “In recent months”, Fontanesi explains, “we have reduced exposure to credit in the form of illiquid instruments, seeking to transfer exposure to highly liquid instruments like iTraxx indices, and our management of interest rates has been dynamic as well. As for this summer? It’s wait-and-see, and we believe that it will be a lateral period, with the risk of sudden spikes of volatility tied to low volumes”.

KIS Dynamic presents another approach, as it is a tactical fund decorrelated from traditional asset classes. Fund Manager Vittorio Fontanesi explains how, in this respect, the team privileges the use of “derivatives, keeping the portfolio highly liquid and managing exposure through the iTraxx Crossover index, with total currency exposure on the dollar and pound now at 10%”.