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AXA fund manager: “the recession is getting closer”


The current expansion in the US is poised to become the longest ever at the end of this month, surpassing the boom experienced during the 1991-2001 Clinton-era. That expansion lasted a total of 120 months, a figure poised to be matched imminently by the current cycle which began back in June 2009.

Nicholas Trindade, manager of the £240m AXA Global Short Duration Bond fund, says that during this time fixed income markets delivered impressive returns, but he warns it was now time to de-risk portfolios.

“The expansion in the US is the second longest in history and looks set to become the longest ever, but it also means recession is getting closer, as illustrated by the inversion of the US treasury yield curve,” he said. “When you combine that with a shift to de-globalisation, weak manufacturing surveys and the potential for trade wars to continue and escalate, it means we expect a slowdown in global growth.”

A dovish switch by central banks at the beginning of the year is a new twist to the story, and has supported markets performance so far, but Trindade warns this was a one-off positive:

“Bond markets have already enjoyed a boost from this dovish pivot by central banks including the US Federal Reserve, which said there would be no more rate hikes this year, and potentially cuts, but that boost cannot happen again. That dovishness is now more than priced in, with three Fed cuts already expected within the next 6 months, meaning the market has set itself up for disappointment.”

As a result, and with other political and geopolitical risks mounting – including tensions between the US and Iran, Brexit, and increasing risks of higher prices for US consumers due to the trade war – Trindade thinks it is time to de-risk fixed income allocations and take some profits on a very good year so far.

“There is a solution for investors who want to de-risk but don’t want to sacrifice yield, as global short duration strategies have demonstrated,” he adds. “These can allow investors to maintain fixed income allocations while maximising risk-adjusted returns by limiting volatility and drawdowns.”

For example, the AXA Global Short Duration Bond fund currently offers a yield that is 80% as high as the yield available on the broad sterling corporate index, while carrying only 25% of the interest rate risk. It is also three times less volatile and has a much lower exposure to the UK, making it more Brexit proof.

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