Artemis Fund Managers' fixed income veteran Stephen Snowden has embraced the volatile markets of the most recent crisis in his near-30 decade career, which has offered the opportunity for outperformance as the first to be significantly impacted by "blanket bombing" passive funds in the corporate bond market.
Family silver
One key asset Artemis Corporate Bond has been buying as a result of 2020 panic selling is legacy bank bonds, issued before the 2008 Global Financial Crisis, which Snowden described as "the family silver" and "the last thing you should sell".
Banks have been rebuying legacy debt instruments, which will lose capital value to the banks from 1 January 2022, with billions of dollars of deals this year alone.
Artemis Corporate Bond's growing position in these legacy debt instruments is evident in its exposure to the banking sector, which stood at 21.2% at the end of September.
Snowden acknowledged that the Artemis Corporate Bond team "are not unique in liking this theme within the corporate bond market", as the market panic this year made available "really interesting legacy capital bonds that are extremely likely to be bought back".
"We were able to meaningfully increase our exposure to legacy bank capital in the market in the market panic," he added.
"What we have seen over the last month or two is, in advance of 2022, some of the banks like NatWest Group and Rabobank have been reasonably successful in buying back a large number of their legacy bank bonds."
Snowden said that while many bondholders have accepted the buyback proposals from the likes of NatWest and Rabobank, Artemis Corporate Bond has not, "because the likelihood of them being bought back between now and early 2022 remains extremely high" while "the bonds continue to yield us an excess of 6%".
