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Charles Hepworth, GAM

Assets to love and leave

Charles Hepworth (pictured), the investment director responsible for GAM’s DFM business, shares his insights into the various asset classes to love and leave…


Convertible bonds - Tapering uncertainty led to a difficult summer for global bond markets, especially emerging market debt which saw significant falls over the period. The fixed income exposure we have is to more esoteric credit markets, such as junior debt and convertible bonds. With rates rising, convertible bonds are firmly back on the issuance menu for CEOs, and the pipeline is rumoured to be substantial. New issuance is good as it expands the universe and creates new investment opportunities.

US equities - The end of September brought some political sparring in the US regarding the budget and ‘Obamacare’, but we don’t expect this to have a long lasting impact on the strength of the US recovery. Political issues aside, with the US unemployment rate now falling back towards the psychologically important 6.5% rate, restoration of trend growth in the US is a possibility. That being said, interest rate rises are a long way off being normalised. Our focus remains on quality companies with earnings stability, and we have increased our exposure to the technology sector.

Absolute return (credit) - Although it is pleasing to note an economic upturn, risks still remain, including political brinkmanship in the US and tension in the Middle East. For this reason, the inclusion of absolute return strategies, and the diversification benefits they offer, continues to be an important element in our offering. In the credit space, emerging market debt and currencies look attractive versus over-leveraged developed markets.


Commodities – We continue to believe that strong trends are lacking in the energy markets, and the commodity arena in general, so we remain reluctant to take large positions. Less demand from China for global commodities in the past decade is likely to translate into weak trends in the prices of raw materials for a prolonged period. We have limited exposure as a result.

Inflation-linked bonds – Inflation expectations have edged higher, especially in the US, but the rise in real yields indicates that growth expectations have also been improving. Given how strong the market for inflation-linked securities has been in recent times, we do not think the sector offers overly attractive opportunities.

Government bonds – While there has been some recovery in global bond markets, our view remains that government bonds in the major economies of the US, UK and Europe do not offer a compelling investment opportunity. In the UK, despite signs of a recovery, economic growth remains weak. Whilst there may be a few months respite before tapering kicks in, further sell-offs will be likely as the global rate cycle begins to pick up.

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