Isaac, who joined Schroders from GLG in November last year, has bought positions in Spanish government bonds across several portfolios this week, including the newly launched Schroder Strategic Bond fund.
The manager believes the ECB’s long term refinancing operation (LTRO), which supplied low-rate funds to Europe’s banks, was a game changer – particularly for Spain, with which the ECB had shown it was prepared to act as a backstop.
"Spain is too big and too integrated into the EU to be left to fend for itself," he said. "A bank failing is one thing, as we saw with Lehman, but a whole country is another."
"While the Spanish yield at above 6 per cent is unsustainable, the government is making the changes to the labour laws that are necessary and I think they will be rewarded by the ECB."
Isaac also likes Italian government debt and spoke positively about the efforts of the technocratic Mario Monti regime in Italy.
"I would rather have an economist in charge of the economy of a country than a politician," he explained.
Isaac first bought Italian 10-year bonds in November last year and has not ruled out adding to his position.
He believes Spanish government bonds present particularly good value compared with gilts, US Treasuries and German Baunds, the yields of which are at record lows and failing to keep pace with inflation.
The manager believes corporate debt presents a good opportunity in a number of areas, but he is wary about relative value.
"In corporate debt, we think you get very well rewarded for the level of liquidity risk," he explained. "Everyone wants the same corporate bonds though and sometimes when bonds are issued they are two-, three- or four-times over-subscribed. We like to wait for a buying opportunity."
The Schroder Strategic Bond portfolio, which was launched in late March, still has 50 per cent invested in cash. Isaac says the team is targeting companies with global revenue streams.
"Corporates are in a better state to survive the volatility in markets than in previous crises thanks to the large cash reserves they have built up," he said.
"We like US banks. They seem to be in far better shape and are starting to lend again. However, utilities and pharmaceuticals are trading pretty tight. We do not like key European industrials, or companies which have European-centred revenue streams. We also try to avoid southern European industrials."
Performance of manager vs peer group over 10-yrs
Source: FE Analytics
According to FE data, Isaac has returned 42.96 per cent in the last decade, outperforming his peer group composite by around 7 per cent.
He is the former lead manager of the GLG Total Return fund.