The UK-based investment house with a total of over $1 billion of assets under management, Stratton Street, explains its approach in overseeing the Wealthy Nations Bond Fund.
Who and where are Stratton Street, the firm?
Stratton Street Capital was based in Stratton Street off Piccadilly on its formation in 2005. Owing to the development of the business and increase in head count, we have moved away from the street but kept our business roots in our title. The partnership’s activities are split into three areas of investment focus of which the largest is international bond and currency investment.
What sort of views do the managers of the fund have about the asset class they are involved in?
The managers believe that we continue to be going through a period of deleveraging in the world financial markets. During such a period, capital flows back from the debtor nations to the creditor nations. Therefore it is imperative as part of the investment process to look at the ability to repay its debt not only on its own behalf but also to protect the interests of its citizens and corporations. Currently with the slowdown in the world economy as a result of this deleveraging the managers prefer the protection of higher grade bonds over high yield.
How has the eurozone crisis and the problems of indebted Western countries affected the thinking of the fund?
The fund’s investment process was key in identifying the risks inherent in about a dozen countries whose NFA positions were greater than 100 per cent, which has meant that it has not been directly affected by the problems of the debt crisis. It correctly identified 11 countries in Europe, all of which have come under pressure over the period. It is this ability to avoid the problems which has led to the success of the performance of the portfolios managed by the team against its peer group.
Does the fund have a limited shelf-life or is it open ended? Is it quoted on a stock market?
New Capital Wealthy Nations Bond Fund is an Irish based UCITS structure listed on the Irish Stock Exchange and recognised by the FSA. It is an open ended daily dealing fund.
Are there other broad points you would like to make about the fund?
It is value-driven, looking to maximise returns through a widely diversified portfolio, currently with 76 holdings. It only buys into large issues with a minimum of $500 million outstanding. The period of deleveraging in the world is going to take longer than most begin to anticipate. The 34 countries of the world that have relatively strong balance sheets are nations that are building themselves and are therefore more likely to want to look at developing their infrastructure rather than sustaining other people’s debt load.