his end aim. But he wanted
to be an equity fund manager
rather than get
involved in bonds that in
the mid and late ’90s were
seen as something of a
sleepy backwater.
“I wanted to be an
equity fund manager, but
there are 360 funds in the
equity income sector and
that is a lot of very clever
people,” he says. “A friend
of my dad suggested I go
into bonds as European
monetary union was just
kicking in, so instead of all
these individual regional
bond markets in Germany,
France and so on you had
a single European market.
Most pension funds then
were long equities and
short bonds, so there was
always going to be big
structural growth.”
Self-deprecatingly, he
adds: “The really
clever guys went
into corporate
finance, the
clever guys went
into equities, and
then the thickies
ended up on the
bond desk.”
Pattullo started
out as a corporate
bond manager in
1999 when the
equity bull market
was at its height, yet
bonds soon came
back into vogue.
“The big structural
growth came as a lot of
firms did not even have
bonds back then. Then
they came out of the other
side of the whole bull
market cycle as equities
were lousy in 2001,
2002 and 2003,
so quite
quickly bonds were not a
bad place to be,” he says.
“Since then the markets
have grown enormously
and funds with them. It is
still quite a young market
– especially for high yield,
although investment grade
is a bit older – but more
professional.”
the leverage cycle
Government bonds ▼
Index-linked
High yield
▼
▼
RECOVERY
RECESSION
Cash
l Seen it all before
Given the scale of the
financial mess we are now
in, and given that Pattullo
has been managing money
for ten years, there is not a
great deal that is new to
him having already worked
through a recession, the
bursting of the tech bubble
and the Asian financial
crisis. He suggests the tech
crisis offers up a mirror of
what the equity markets
are going through.
“I took over the
Preference & Bond Fund in
late 2001, just before the
telecoms crisis. What did
the telecoms guys do? They
were distracted by deregulation,
the internet and 3G
in the same way as the
banks were distracted by
sub-prime and so on. They
went for growth, got it
wrong and so all did rescue
rights issues – the end result
was that corporate bond
spreads screamed in and
equities were destroyed.”
The difference between
then and now in terms of
how he as a fund manager
can react to market and
economic fluctuations is
the flexibility that he has
available to him through
Ucits regulations.
“We use interest rate
futures a lot more, both
long and short, so we are
managing government risk
Debt
reduction
Bonds
The bubble
bursts
Credit eqs
▼ Credit eqs
Profits
up faster
than debt
Credit eqs
Debt growing
faster
Credit eqs
Loans
”
Source: Henderson Global Investors
DEcEmbER 2008 [www.portfolio-adviser.com] PORTFOLIO ADVISER 21
Stocks
Com’dities
Fund Manager proFile John pattullo
GROWTH
BOOM
which we could not do
before,” he says. “Ucits III
gives us the ability to long
and short through credit
derivatives so that has been
hugely beneficial. We are
still a long-only bias fund
but Jenna and I have had
some success shorting.”
l Wive’s tale
Pattullo is quick to defend
credit derivatives. He
argues that the theory of
the whole credit problem
being down to credit derivatives
is “rubbish”, and that
the problems are down to
sub-prime and leverage –
credit derivatives simply
allow leverage.
Despite everything, he
is still bullish – moderately
so, but bullish none the
less. He reckons on three
to six months of uncertainty
before he sees market
prices stabilising, although
he suggests that now is the
time to maximise any fixed
interest exposure.
“We look across the
spectrum at high yield, leveraged
loans, investment
grade, sovereign bonds,
and currency,” he explains.
“You could argue we are
jacks of all trades, masters
of none, but our asset allocation
has been good – we
came out of high yield and
into investment grade at
the right time.
“We were a bit long on
banking investment grade
bonds so it depends where
you cut the line between
asset allocation and stock
selection. We take a cyclical
macroeconomic view of
which assets classes you
would expect to perform
subject to the interest rate
and default environment.
So in good times you want
to be in high yield and in
bad times in sovereign. The
surprise this year has been
how poor government
bonds have been.”
BiographY
John Pattullo joined
Henderson Global Investors
in 1997 and has been director
of fixed income since 2005,
with responsibility for UK
retail. He co-manages the
Preference & Bond Fund and
the Strategic Bond Fund with
Jenna Barnard.
Pattullo started his
working career training as
a chartered accountant with
PricewaterhouseCoopers,
having graduated from St
Andrews University with
an MA in economics.
He has worked his way
through Henderson from
a trainee corporate bond
manager in 1997, to corporate
bond manager two years later
and up to being director of
retail credit in 2005 prior
to taking on his current role.
“
You could argue
we are jacks of all
trades, masters of
none, but our asset
allocation has been
good – we came out
of high yield and into
investment grade
at the right time
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