e-fundresearch.com: Mr Phil Milburn, you are the fund manager of the Kames Strategic Global Bond fund (ISIN: IE00B296YP53). When did you take over the responsibility of managing this fund?
Phil Milburn: I have been managing this fund with my colleague David Roberts since it launched in November 2007. We have been managing mandates running this kind of total return global bond strategy for over 10 years.
e-fundresearch.com: What is the current size of the fund?
Phil Milburn: $850m
e-fundresearch.com: Do you also manage other funds or mandates? (If yes) What is the total amount of assets you manage currently?
Phil Milburn: I am also the head of high yield at Kames Capital and manage our high yield mutual funds with my colleague Claire McGuckin, total AUM $3.2bn. In strategic bond funds we manage $2.1bn.
e-fundresearch.com: How long have you been in the business as a fund manager?
Phil Milburn: Over 17 years, I started working on equities originally before moving into fixed income 13 years ago.
e-fundresearch.com: What are the main steps in your investment process and in which area is your competitive edge to add value to investors?
Phil Milburn: We have a formal strategy process that occurs once a month and is ratified at informal daily and weekly meetings. Firstly we analyse the macroeconomic backdrop which sets the frame for our asset allocation discussions. We then debate and conclude what duration positioning is suitable for this environment. We decide upon whether we prefer lower risk government debt, investment grade corporate debt, emerging market exposure, high yield bonds and even asset backed debt. Throughout our process we have our experts in each area employ our quadrant model examining fundamentals, valuations, technical and sentiment to ensure a consistency of approach. As well as the competitive advantage of consistency we also believe we gain advantages by combining top down and bottom up analysis.
The Kames Strategic Global Bond Fund makes use of six sources of alpha:
1. Asset Allocation – for example do you prefer investment grade or high yield
2. Rating Allocation – do you prefer AAA or BBB rated debt, this is similar to asset allocation but market movements can frequently be driven by regulations as well as investor desires
3. Duration – the interest rate sensitivity of the Fund
4. Yield curve – do you prefer short dated or long dated bonds
5. Sector allocation – for example do you prefer debt issued by banks or utilities
6. Stock selection – each position should be able to provide upside to the Fund
e-fundresearch.com: How many positions does the portfolio usually contain and what is the average holding period of an investment?
Phil Milburn: Our whole portfolio construction ethos is about taking many medium sized risk positions. This is as opposed to running either too much concentration risk or at the other end of the scale running a huge tail of holdings. Within corporate bonds a less risky position in a large investment grade name may be up to 2% of the fund whereas a risky high yield position would be nearer 0.5%; this leads us to normally run with a range of holdings between 120 and 150 bonds.
The holding period of each bond varies with some bonds having been there since launch and others bought and sold within a day if they rally significantly. A lot of this is driven by our review discipline with any position that has cost or made the Fund 10 basis points of performance being actively reviewed.
e-fundresearch.com: To which extent does fund size impact the efficiency and effectiveness of your investment strategy?
Phil Milburn: Compared to many of the larger competitors in our peer group who are running funds over $50bn and one even over $200bn we are still very small. This enables us to be more nimble in what is an illiquid market and take advantage of more alpha generating opportunities.
e-fundresearch.com: In which market environment does your investment strategy deliver the best (relative) results?
Phil Milburn: We thrive in periods of volatility. We welcome large market moves and forced sellers or buyers which create a mispricing of assets which we can take advantage of. This applies to both top down portfolio shaping and bottom up security selection.
e-fundresearch.com: Which benchmark is most relevant and how should investors compare the fund vs. benchmarks or peer groups?
Phil Milburn: The primary target is to outperform the peers in the longer term. Because the peer group is large and diverse and this is completely consistent with our secondary target which is to outperform the Barclays Global Aggregate Index (please note that we use a currency hedged version of the index because we hedge all the FX risk in the Fund).
e-fundresearch.com: Which performance did you achieve for the fund YTD and over the past five calendar years in absolute terms and relative to relevant benchmark or other reference indices?
Phil Milburn: According to Lipper for the Bond Global sector the Kames Strategic Global Bond Fund (USD) has returned 4.29% year to date to the 31 July 2014, compared to Bond Global Average of 3.69% and the Bond Global Median of 3.69%.
Over five years to 31 July 2014 the Kames Strategic Global Bond Fund (USD) has returned 46.63% compared to the sector average of 23.39% and sector median of 22.1%.
e-fundresearch.com: What motivates you in your job?
Phil Milburn: I am very fortunate to be doing a job that I love. I learn something new every day and because of this never get stale or complacent. In fixed income every basis point counts and I am a very competitive person who is motivated to seek out every appropriate opportunity for investors. My co-manager David Roberts has a very similar personality and this keeps us both on our toes.
e-fundresearch.com: Which other profession would you have considered apart from becoming a fund manager?
Phil Milburn: I would have loved to have been a professional golfer, you need the competitive edge like in fund management and the ability to carefully analyse the risks. However, I simply do not have the golfing skill so will have to stick to fund management and maintain golf as a hobby.
e-fundresearch.com: Thank you!
