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Stephen Snowden

The head of Old Mutual Asset Managers’ corporate bond fund took over the reins of the top-performer three ago and has maintained the fund’s sparkling performance by freeing up its mandate and through a mixture of playing themes and reinvention. One of his present themes is the ‘botherance factor’ of bonds with restrictive covenants. Interview by James Phillipps.

Stephen Snowden is not a man to shirk a challenge, whether it is skiing down the steepest black run in Alpe d’Heuz or taking the reins of a fund which has been the top performer in its sector for the last three years.

Snowden has just passed his third anniversary at Old Mutual Asset Managers after joining from Aegon in February 2004 as part of an investment merry-go-round that saw three fund managers switch firms in less than a month.

He took over the management of the group’s top-performing corporate bond fund after Richard Woolnough moved to M&G. Snowden was later replaced at Aegon by Britannic’s Dave Robertson.

The Ulsterman says he was unfazed by taking over a fund with such a sparkling performance record. After all, the Aegon sterling corporate bond fund he had run since June 2000 was third in its peer group at the time.

He says: “As a fund manager, you ask your investors to back you but if a firm like Omam comes along and asks you to take over a fund from someone who has been number one over the previous three years, they are really asking you if you are willing to back yourself. The three of us who moved have all been top-quartile but my fund has been number one in its peer group since I have been here and also the most consistent.”

Over three years, the fund is up by 18.4 per cent compared with a sector average return of 11.2 per cent.

Snowden’s only regret about moving to Omam is that he was unable to spend more time skiing during his gardening leave.

He says: “My wife was pregnant and a friend was having a stag do in Las Vegas so everyone was saving for that. Other friends were going after my gardening leave finished so in three months I only spent one week on the slopes.”

The move to Omam also involved something of a lifestyle change for Snowden. He continues to live in Edinburgh with his young family but commutes to the firm’s London offices on Tuesday morning, returning home on Thursday evening.

When he took over the fund, he was also allowed to free up its mandate and remove the restrictions limiting its exposure to BBB-rated bonds and preventing it from holding non-rated issuance.

The holdings are completely Snowden’s own stock picks after he sold out of the last one he inherited last month.

He says although the fund was clearly in great shape when he took it over, the previous manager ran it in a very different style to his own. “My predecessor ran the fund with strong interest rate views whereas my style is more based on stock selection. His origins are as a gilt trader and mine equity analysis. You play to your strengths and both ways clearly work because he has a great track record.”

Snowden moved quickly to take advantage of the fund’s ability to hold non-rated paper, investing around one-fifth of the fund in property debentures.

He says despite the strong performance of property companies in recent years, their bonds were very cheap three years ago. This was largely down to the fact that they were non-rated, which many in the market mistook for a lack of transparency.

But Snowden says they are effectively plain vanilla bonds, giving the holder a senior claim on the underlying buildings if they default. Many of the property portfolios had a loan to value of as low as 35 per cent, however, reflecting their low-risk status. The bonds are no longer issued and are now being continually bought back by the issuers, which has caused them to rally strongly and become a great performance kicker for the fund.

He says the broader corporate bond market has largely traded within a range in recent years, meaning that turnover has averaged 300-400 per cent. But the turnover does not concern him because of the value it adds and the fact that there is no stamp duty to pay on bond trades.

He says: “The market has traded within a range and it is my job to take profits and then buy bonds when the market has cooled off a bit. There are many different themes to be played. You have to continually reinvent yourself and take advantage of the situation.”

One such theme he is playing is targeting bonds with restrictive covenants. These can cause the issuer problems by stopping them gearing up their balance sheets or divesting assets. “The companies get fed up with it and buy them back and have to pay a premium to do that. It is the botherance factor.”

Despite the weakness of the bond market last year – Snowden’s fund returned 1.5 per cent while the average fund was down by 0.7 per cent – investors continue to support the fund. It was £155m in size when he took it over but has since grown to £840m.

Again, Snowden is unperturbed by this. He says unlike many of his competitors who run segregated or institutional mandates, this is the only fund he manages. He points out that the fund’s performance has been unaffected by its growth in assets and stresses that people should look at the strategy’s capacity, not the fund size, and he is confident that he could run 10 times the current amount without having to adapt his style.

Snowden remains upbeat about the outlook for the asset class.

He says: “Bonds are now at very beatenup levels. Gilts are at their lowest level since the Bank of England became independent. Bonds look very cheap, whether we have another interest rate rise or not, and the economic data is a lot softer than it has been. I would be very disappointed if we do not beat cash this year.”

Bonds have often been overlooked in the past few years as investors’ eyes have been drawn to the racier returns from property and more exotic parts of the market such as Bric funds but Snowden maintains that they remain as valid an asset class as they have ever been.

He says investors should look to build stability into their portfolios and notes that the fund has delivered twice the returns that an account with internet bank ING would have over the past three years and he is confident that the fund will continue to beat cash handsomely over the medium term.

Born: Northern Ireland, 1972

Lives: In Edinburgh with wife and two children but commutes to London on Tuesday and returns to Scotland on Thursday

Education: 1994: Graduated with an MSc Finance from Queen’s University, Belfast

Career: Aegon 1994 – US equities desk, 1998 – corporate bonds desk, June 2000 – starts running Aegon sterling corporate bond fund from launch and made head of retail fixed income in 2002, February 2004 – took over Old Mutual corporate bond fund and the bond element of the Old Mutual extra income fund

Likes: Skiing

Dislikes: Political correctness

Drives: Rav 4 diesel

Favourite book: The Art of War

Favourite film: Original Star Wars trilogy

Favourite album: Mainly 1980s stuff because it reminds of my university days

Hero: Margaret Thatcher

If I wasn’t doing this, I would be… In the army. I was in the Territorial Army for 10 years


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