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Jupiter’s Bezalel: The threat to your fund that everyone has forgotten about

09 July 2015

FE Alpha Manager Ariel Bezalel provides his economic outlook over the rest of this year, warning that the threat of deflation still hasn’t disappeared.

By Lauren Mason,

Reporter, FE Trustnet

Colossal levels of global debt are battering any potential for growth and increasing the likelihood of another bout of deflation, according to Jupiter’s Ariel Bezalel.

However, the FE Alpha Manager says that markets mistakenly believe they’ve escaped the clutches of deflation, following the government bond sell-off in April and May this year.

Performance of bond sectors in 2015

Source: FE Analytics  

He argues that this wasn’t the result of inflation nerves, as there were a number of indicators over the course of the year, such as a move in breakevens (or inflation expectations calculated by comparing the yield of inflation-linked bonds and conventional treasuries), that caused investors to breathe a sigh of relief.

“Just bear in mind that all we’ve really done is go back to, in terms of inflation indicators, levels we saw [in the second half of] last year,” he warned.

“I don’t think the market has completely escaped the slow growth deflation outlook at all, in fact. I’m still very much of the belief that concerns about deflation are going to be with us still for quite some time.”

“The debt levels are going to haunt us for quite some time and I think ageing demographics around the world are going to present quite a hindrance to economic growth as well.”

Bezalel (pictured) points out that, despite more than 700 rate cuts occurring around the globe since 2008 and trillions of dollars of money-printing from various central banks, growth is yet to begin significantly increasing.

He attributes this primarily to global debt, which has increased by nearly $60trn since 2007 and now stands at a staggering $200trn. The manager says this level of debt is unsurprising, however, given governments’ attempts to bail out their banking systems and spending to bolster recovery. 

Data from Jupiter shows the level of growth needed for governments across the world to deleverage is substantial.

When looking at GDP growth projections between 2014 and 2015 compared to the additional growth needed, the UK alone needs to almost double its GDP growth to even begin deleveraging. In the second quarter of 2014, the UK’s government debt-to-GDP ratio stood at 92 per cent, which is 12 percentage points higher than Germany’s but 40 percentage points less than Spain’s.


 “Very few countries around the world have actually deleveraged and a vast majority of countries have only been re-leveraging since the crisis – so all this talk about austerity and deleveraging is somewhat of a fallacy,” Bezalel said.

“[French economist] Thomas Piketty is right – there needs to be a conference about debt problems globally because otherwise it’s going to be headwind to growth for many years to come.”

“One of the concerns we have about the UK is the amount of leveraging in the private sector. The consumer is still very leveraged. I think this is a big reason the Bank of England is going to be slow to raise rates.”

Some financial experts argue that the recovery seen in the UK economy over the last few months is unbalanced as it is fuelled by debt.

What’s more, some are worried that the overhang caused by the debt that UK households have racked up is too substantial not to cause problems for the economy.

“Bear in mind the high level of sterling I think is also presenting quite a headwind to parts of the economy. The last couple of days we’ve also had some very weak manufacturing production numbers in the UK,” Bezalel added.

Despite this, the manager actually likes the UK at the moment, due to comparatively robust economic growth, an increase in wage growth and the competence of chancellor George Osborne.

On a global scale, however, he says that the evidence of deflation has been building over the last few weeks.

“Obviously we’ve got the Greece and China concerns, but what’s going on in commodity markets is not just a reflection of a lot of supply but also weak demand,” Bezalel said.

“We are seeing a bit of a reassessment of inflation expectations. These inflation expectations were revised up somewhat earlier this year with the big back up we had in government bond yields and they’re now starting to come down.”

“In the last few days in fact we’ve been boosting our exposure to long-dated government bonds. We’ve been adding to our US treasury exposure. We’ve been initiating a position in New Zealand government bonds.”

In developed markets as well as some emerging markets, the manager says that growth expectations have been revised down since January 2014, particularly in America, Canada, Brazil, South Korea, Australia and China.


 According to data obtained by Jupiter, the eurozone has only seen a slight revision upwards, despite the employment of quantitative easing earlier this year.

“I don’t think quantitative easing does a hell of a lot for growth. What it does is simply devalue currency and I think that’s one of the key channels that economic growth is helped along,” Bezalel explained.

“With regards to what’s going on inside the emerging markets, deflation is becoming pretty well entrenched in places such as Singapore and Thailand. PPI [producer price index] numbers are actually negative territory for China.”

“I don’t think the deflation bogeyman has gone away at all, I think it’s just been pushed to one side for now.”

Bezalel’s £2.6bn Jupiter Strategic Bond fund currently has a 25.34 per cent weighting in government bonds and a 57.79 per cent weighting in corporate bonds.

The fund has outperformed its peers in the IA Sterling Strategic Bond sector over three and five years, delivering a top-quartile total return of 43.99 per cent over five.

Performance of fund vs sector and benchmark over 5yrs

Source: FE Analytics

The fund has also turned in top-quartile numbers when it comes to metrics such as annualised volatility, maximum drawdown, Sharpe ratio and alpha generation over the past five years.

Jupiter Strategic Bond

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.