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Throughout the past decade, Jamieson Coote Bonds has consistently displayed a firm dedication and expertise in effectively managing government bonds. This journey began in the heart of Melbourne's financial district, where the firm was founded by its co-founders, Charlie Jamieson and Angus Coote.
Driven by a shared vision to provide Australian investors with genuinely defensive investment opportunities, Jamieson Coote Bonds has evolved into an institutionally recognised investment management firm. Through expanding its investment team strength and diversifying its investment solutions, the firm currently oversees $A1.5 billion (as at 31 July 2023) on behalf retail investors.
Jamieson Coote Bonds’ experience extends far beyond the last decade, having effectively managed bond portfolios during economic expansions, contractions, and periods of recovery. With a dedicated focus on high grade bond management, the investment team actively positions investments in government bonds, adjusting duration and yield considerations in response to shifting economic conditions, and monitoring interest rate movements and inflationary pressures. Successful management also entails diversifying within the government bond universe, which may include bonds issued by various Australian and G7 government entities and maturities. The goal is to maximise returns while minimising risk exposure, ensuring that the portfolio remains resilient across the cycle.
Bond yields are influenced by various factors, including changes in monetary policy, economic conditions, and global financial events.
The Global Financial Crisis (GFC) in 2008 had a transformative effect on government bond markets globally. Many governments implemented fiscal stimulus measures and rescue packages which were financed by issuing government bonds. This increased issuance expanded the size of government bond markets in many countries, making them larger and more liquid.
As a result, government bonds assumed an even greater role as safe-haven assets, particularly during times of volatility and uncertainty. Investors began to recognise the benefits of asset specialisation, specifically segregating fixed income assets to construct portfolios focused on both defensive positioning and income generation.
“It has been an incredible journey. We are proud of what we have achieved as a business and for our investors, but we are also mindful of the challenges ahead. Fixed income markets are constantly evolving, and we aim to continue delivering value to our investors.”
In addition, the conventional strategy of relying on a composite fixed income approach or adopting a one size fits all fixed income allocation, as guided by a composite benchmark, was one that no longer aligned with investor objectives. A composite allocation typically combines a mix of high-yield bonds (often known as junk bonds), corporate bonds, and government bonds, and each carry their unique set of risks.
Jamieson Coote Bonds was formed to provide investors with this optionality. By allowing for the separation of liquid and high quality sovereign bonds to be separated out from credit securities exposure within fixed income portfolios. Jamieson Coote Bonds believes that allocating to specialist managers within fixed income sub-sectors can allow investors to better achieve their objectives.
As a trusted investment manager, Jamieson Coote Bonds has made good on its promise to defend and protect – in good times and bad. Using the experience of the pandemic of 2020 as an example, high quality fixed income assets performed extremely well, rallying strongly while many other asset classes suffered under intense uncertainty. Australian equities, for instance, experienced a nearly 40% pullback at one point. During this period, investors were able to capitalise on their fixed income holdings by selling at a profit and strategically transitioning into undervalued equities, reaping substantial profits. During this period of market stress, Jamieson Coote Bonds did not implement any exit restrictions on its investors, a contrast to many other fixed income asset managers. This serves as a prime example of how a defensive strategy is designed to operate effectively.
In mid-August of this year, the yield on the benchmark 10-year Treasury note reached its highest levels since 2007. At the same time, an inverted yield curve persists, meaning certain shorter-term securities offer higher yields than some longer-term instruments. Nevertheless, this may be a time for investors to consider positioning fixed income portfolios to capture upside potential further out on the maturity spectrum. The inverse relationship between bond yields and bond prices presents a challenge for existing bondholders when yields are on the rise. When yields rise, prices of current bond issues fall, a function of supply and demand. When demand for bonds declines, issuers of new bonds must offer higher yields to attract buyers, reducing the value of lower-yielding bonds already on the market.
Presently, there are more appealing opportunities due to the increased yields available. Investors with existing bond portfolios should contemplate extending their investments towards longer maturities, where they can secure reasonably attractive yields over an extended period. It's noteworthy that, despite shorter-term securities offering higher yields, longer-term bonds have delivered comparable total returns during the first half of 2023.
Jamieson Coote Bonds believes investors can benefit from positioning their fixed income portfolios with longer duration bonds that are more in line with their long-term goals and time horizon.
Opting to allocate a larger portion of one's bond holdings to high quality segments of the fixed income market can yield broader diversification advantages. It is a way to add diversification to help manage risks in a portfolio that includes equities, which tend to experience more short-term volatility. In 2022, an unusual event unfolded as both equities and bonds saw a decrease in their value. However, when considering the long-term perspective, holding high grade bonds will typically help smooth volatility in an investor’s diversified portfolio.
As is often the case in the late cycle environment we find ourselves in today, any geopolitical or global policy changes can trigger market reactions − the Jamieson Coote Bonds investment team is prepared to skilfully manage these risks on behalf of investors.