Moneywise First 50 interview: Geoff Hitchin, Marlborough Global Bond Fund

2 October 2019

Geoff Hitchin is the investment manager of the Marlborough Global Bond Fund. Edmund Greaves talks to him about his investment choices, the pitfalls he looks out for and his tips for beginners

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What is the Marlborough Global Bond Fund?

It is a fund that invests in bonds issued by companies and governments around the world, with the aim of providing both income and capital growth. We have the freedom to look pretty much anywhere in the world

for what we think are the most attractive opportunities.

We also actively manage foreign currency exposure in several ways. At its most straightforward, if we’re expecting the Japanese yen to gain ground against other currencies, then we’ll buy yen and hold it as cash in anticipation of that appreciation in relative value.

Why should people invest in your fund?

What we aim to do for our investors is achieve steady returns that will compound over time to produce attractive long-term performance. The fund seeks to produce these returns through different market conditions – that is, when stock markets are doing well and riding high, but also when investors are nervous and stock markets are going through difficult times.

We have a well-established investment process, tried and tested over the 30-plus years I’ve been running the fund, and at the heart of this is a conservative and patient approach, with a strong focus on managing risk. So we take great care with our investors’ money.

We are currently holding 500 bonds from about 350 different companies and government bodies, and that diversification helps to manage risk. If there is a problem with a particular bond, then it’s only a small percentage of the overall portfolio.

Buying and selling bonds can be expensive, so we like to hold them for the long term. This keeps turnover low and helps to preserve our investors’ capital over time.

What gets you out of bed in the morning?

The truth is I find investment markets generally, and bonds in particular, endlessly fascinating. I get interest and pleasure from studying them, understanding what’s happening and then making the right decisions on behalf of our investors.

One of the main things we’re looking for are bonds where there’s a mismatch between the price at which you can buy them and the value they offer. Often it takes considerable research to ensure there really is a mismatch and that there isn’t a good reason why the bond is cheap. But once we’re satisfied, then, all other things being equal, we’ll consider acting on the opportunity. Even after more than 30 years, it’s a job that I still find very rewarding.

What’s the first thing you ever invested in?

My first investment was buying shares in a gold-mining company when I was in my 20s. I’d been reading the papers and was expecting a gold price rise and I liked this company in particular. Don’t ask me whether it turned out to be a good investment though, as it was a long time ago.

It wasn’t until the early 1980s that I really became interested in bonds. Interest rates were very high, and you could get 15% a year interest on US bonds. I was firmly of the view that inflation would come down, making those bonds a lot more valuable because of the income they paid.

My interest stemmed in part from reading something called the Investors’ Bulletin by Bob Beckman, who was a bit of a maverick in the investment community. He wrote a lot about bonds, and I found what he had to say compelling; I felt fixed interest was an arena that presented attractive opportunities for investors.

Having developed an interest, I went a step further and in 1987 set up the unit trust that is today the Marlborough Global Bond Fund.

What is the best investment decision that you’ve made for the fund?

Immediately after the Deepwater Horizon oil spill in the Gulf of Mexico, the price of BP’s bonds fell sharply. It was a tragic episode, in terms of the loss of life and environmental damage, but we believed BP remained a strong business. We bought their bonds for significantly below their face value, what’s known as par value, and they went on to regain that ground.

We also made the right call on the Equitable Life bonds. The pension company came close to collapse in 2000, and the bonds were trading at a fraction of their face value. But after looking carefully at them we decided there was an opportunity. We bought them and eventually they recovered.

And the worst?

The one that sticks in my mind is Anglo Irish Bank. We bought some of its bonds for around £100 just before the 2008 financial crisis and they went right down to £1 or £2. They were heavily subordinated, which means you’re at the back of the queue to get your money when something goes wrong, so nobody wanted them.

What that episode did, though, was to underline the value of holding a diversified portfolio so that if things do go wrong with one of your bonds, the impact on the overall portfolio is very limited.

What one tip would you give a beginner investor?

I’d emphasise the importance of diversification. The age-old proverb ‘don’t put all your eggs in one basket’ makes good sense when it comes to investing. The sensible approach is to spread your risk. Companies can unexpectedly run into trouble, so you don’t want to be overly exposed.

These are the investment manager’s views at time of writing and should not be taken as investment advice.

The manager behind the fund

Geoff Hitchin founded Marlborough Fund Managers in 1986. He launched the Marlborough Global Bond Fund the following year and went on to set up the Marlborough Bond Income Fund in 1998. In addition to managing the two funds, he is also Marlborough’s investment director.Educated at Brentwood School in Essex, Geoff began his career as a trainee accountant and then spent nearly 20 years as a tax officer and tax consultant, before moving into investment.

Marlborough Global Bond

Launch: 5 August 1987

Fund size: £473m

Charge (OCF): 0.43%

Yield: 3.33%

Source: Marlborough Fund Managers. Data for ‘P’ Class units as at 1 August 2019

Geographical breakdown

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Discrete performance of the fund over five years (%)

Period

0-12 m

12-24 m

24-36 m

36-48 m

48-60 m

Marlborough Global Bond

11.7

-1.9

5

19

1.9

IA Global Bonds

9.9

-2.1

4.8

17.7

-1.2

Source: FE Trustnet, 2 September 2019

Top 10 holdings

# Holding %
1 TESCO PERSONAL FINANCE PLC 5 0.66
2 SKY LTD 4 0.66
3 CRH FINANCE (UK) PLC 4.125 0.61
4 MCDONALD`S CORP 5.875 0.6
5 WALGREENS BOOTS ALLIANCE 3.6 0.6
6 BEAZLEY IRELAND HLDGS PLC 5.375 0.59
7 VERIZON COMMUNICATIONS INC 3.375 0.54
8 UNITED STATES OF AMER TREAS STRIP 0 0.54
9 IMPERIAL BRANDS FINANCE PLC 4.875 0.51
10 WELLTOWER 4.5 0.51

Source: FE Trustnet, 2 September 2019. Note number at the end of each holding refers to % return of the bond

Currency exposure breakdown as at 02/09/19

Currency %
US Dollar 36.93
Euro 5.25
Japanese Yen 9.77
British Pound 43.24
Australian Dollar 1.00
New Zealand Dollar 0.21
Swiss Franc 1.04
Norwegian Krone 0.60
Swedish Krona 1.10
Brazilian Real 0.22
Canadian Dollar 0.40
Danish Krone 0.21
Singapore Dollar 0.03

Source: Marlborough, 2 September 2019.

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