Bezalel (pictured), manager of the five crown-rated Jupiter Strategic Bond fund, accepts that low-yielding areas of the market such as gilts are under significant pressure. However he says there is good value in many other areas of the market, such as financials, where credit spreads in tier-one banks are still a lot wider than they were before the crash of 2008. "I don't believe we are in any sort of bond or credit bubble at the moment," he said.
"In the pre-Lehman years, spreads were at 200 basis points and we are at around 500 basis points at the moment, so I think there is a lot of scope for them to tighten."
The manager says he has upped his exposure to this area recently.
"Something we always do when looking ahead to the New Year is to look at what could give us juicy returns. One sector we have highlighted for this year is banks, where I think we could see double-digit returns in 2013."
Bezalel, an FE Alpha Manager, thinks that institutionals have learnt their lesson from the financial crisis, which has sent the default rate plummeting.
"I was recently at a roundtable with analysts for Barclays and I posed the question: 'Where might we see defaults in the market this year?' They all shrugged their shoulders," he said.
"The default rate in Europe is as low as 2 per cent at the moment; these are some pretty low levels."
"This difficult and very uncertain environment is very good for companies really, because it means they keep their discipline and keep strong balance sheets. They are not doing anything crazy, which bodes well for bonds."
Bezalel has run the £1.4bn Jupiter Strategic Bond fund since its launch in June 2008.
According to FE Analytics, over that time it has been the second-best performing fund in the IMA Sterling Strategic Bond sector, with returns of 70.32 per cent – falling just short of L&G Dynamic Bond.
Performance of fund vs sector and index since launch
Source: FE Analytics
It has substantially outperformed its benchmark – the Iboxx Sterling Non-Gilt index – over that time, but has tended to be more volatile than both its sector and benchmark.
This outperformance and the growing reputation of Bezalel have led to significant inflows.
According to FE data, Jupiter Strategic Bond is the second-best selling fund in the IMA Strategic Bond sector over the last year, beaten only by M&G Optimal Income.
While Bezalel says he is finding plenty of opportunities in the bond market at the moment, he says this could well change if global growth spikes.
"Don't get me wrong, 12 months down the line it could all be very different as market sentiment and economic data could pick up," he said. "This might mean that companies start to do more interesting things – like re-leveraging – which could have a detrimental effect on their credit."
"However, at the moment there is still a demand for credit. High street banks are doing very little for depositors and investors need to boost their savings."
Jupiter Strategic Bond’s largest weighting is in BB rated credit – making up 23.32 per cent of the portfolio. His three largest holdings are Australian government bonds.
"Australia is one of the only true AAA sovereigns and is possibly the best government bond market out there," Bezalel continued.
"Pre-Draghi speech, we had about a quarter of the portfolio in Aussie "govers", but we have slashed our exposure to around 11 per cent because we are generally feeling more positive."
"However, if I am wrong and areas like China fall away again, it is good to hold them because of their safety and relatively high yield."
He sees little value in gilts though, and says it could only be a matter of time until the UK loses its coveted AAA rating.
"There is a real risk of a re-rating," he said.
"What worries me most is that sterling relies heavily on the support from foreign money. However, if the problems surrounding Europe ease then foreign investors who were putting their money into what they thought was a safe-haven may flood into the continent."
"Stamp duty is now about 15 per cent, which could put off a lot of foreign money. It would also be interesting to see what would happen to property in London."
Bezalel thinks the recent bad weather could push the UK into a "triple-dip recession", which could usher in a new bout of quantitative easing.
Jupiter Strategic Bond – currently yielding 5.6 per cent – has a TER of 1.51 per cent and requires a minimum investment of £500.