The Wall Street Journal : Greek Government Bonds Pay Off Big for Fund Managers

WALL STREET JOURNAL :  Πώς οι διαχειριστές αμοιβαίων της Eurobank και Εθνικής έβγαλαν τις μεγαλυτερες αποδόσεις παγκοσμίως απο τα ομόλογα του Ελλ. Δημοσίου.

John Gikas, left, and Aris Papageorgakopoulos manage funds that have returned over 100% in the past year by betting on Athens debt. Alkis Konstantinidis for The Wall Street Journal

The best-performing bond-fund managers in the world this year aren’t in London, New York or California. They are based in Athens.

Panos Simos of NBG Asset Management and Aris Papageorgakopoulos and John Gikas of Eurobank Asset Management manage three bond funds that have delivered returns of more than 100% in the past year. No other bond funds tracked by Morningstar globally have offered such returns.

All three top performers have won big from making the same bet: buying Greek government bonds at the height of the euro-zone debt crisis and holding onto them when other investors were steering clear.

Investors’ perception of Greece has turned around sharply in recent months. Some Greek government-bond prices have more than quadrupled from their nadir in June 2012, as fears of a Greek exit from the euro zone receded. Some major Greek companies have successfully issued bonds, and big-name investors have returned to Greek equities. Mark Mobius, who manages more than $40 billion in emerging-market assets at Franklin Templeton, told The Wall Street Journal this month that he plans to buy shares in Greek companies for the first time in more than a decade.

Against the backdrop of that shift in sentiment, Messrs. Simos, Papageorgakopoulos and Gikas are finding themselves in the right place at the right time.

“Greek bonds at one stage were the single most hated asset class in the world and we thought that there was not much to lose at the bottom of the market,” Mr. Papageorgakopoulos said.

The €83 million ($114.6 million) DELOS Domestic Bond Fund run by Mr. Simos has delivered a total return of 108% in the past 12 months, making it the world’s top-performing bond fund. Following closely are the €30 million Eurobank LF Government Bond Fund and the €137 million Interamerican Fixed Income Domestic Bond Fund, both run by Mr. Papageorgakopoulos and Mr. Gikas. Those funds returned 107% and 105%, respectively, to investors in the past 12 months, according to Morningstar data.

To be sure, these are small funds with specific mandates to invest in Greek debt. Nevertheless, their performance is way ahead of the world’s best-performing dollar-bond fund, which delivered returns of 34% from asset-backed securities, while the best-performing emerging-market fund returned 31%, Morningstar data show.

The Greek funds don’t use any complex mathematical strategies, nor do they particularly target extremely wealthy individuals. A majority of the investors are ordinary retail customers or the pension funds of Greek companies.

Despite the strong performance of their funds, the three fund managers don’t easily fit the mold of the superstar investor. Messrs. Papageorgakopolous and Gikas say they typically work from 9 a.m. to 6 p.m. and fly economy class when traveling for work. The 44-year-old Mr. Papageorgakopolous, who has a master’s degree from the University of Reading in the U.K. and an MBA from what is now known as Cass Business School in London, drives a 2003 Audi he bought secondhand in 2006 and lives in the same house where he grew up in the Athens suburb of Filothei.

The fund managers haven’t been spared from the impact of the flurry of austerity measures announced by the Greek government, either. Mr. Gikas, 44, said that he has had to cut down on expenses as his tax bill has gone up, while Mr. Simos, 36, said he had to defer plans to buy a house and is renting instead after banks cut down on lending.

“The mutual-fund industry was never the best-paid sector of finance in Greece. We don’t have a hedge-fund or an investment-banking mentality, so we never lost touch with reality,” Mr. Papageorgakopolous said.

He cited good luck as a major factor in his fund’s performance. Under their own rules, the funds have to invest at least 50% or more of their assets in Greek government bonds and can allocate the entire fund to them if needed.

The fund managers have put 100% of their portfolio in this single asset class.

In contrast, many asset managers based overseas have had to sit out the Greek market rally. The country’s bonds are rated deep in “junk” territory, which shuts them out of major bond indexes and many investors’ mandates. For some large investors, the small size of the Greek government-bond market is also a hindrance. Only €25 billion worth of new tradable bonds is outstanding in the market.

The funds’ performances aren’t due to good fortune alone, though, and owe something to patience and some canny bets. Mr. Papageorgakopoulos and Mr. Gikas first cut down their holdings of government bonds a month before Greece’s first general election in May 2012 that failed to lead to a decisive outcome. They instead bought Greek bank bonds while they were trading below their original price, correctly predicting that investors would get paid back in full when all of these bonds matured.

They then maxed out on government bonds, allocating their entire fund to Greek government debt after the second round of elections in June of the same year.

“After the second round of elections, we managed to get a government willing to work with international creditors and implement reforms,” Mr. Papageorgakopoulos said.

The three fund managers bought Greek government bonds at average prices as low as 12 cents to the euro. The average price of Greek bonds is currently around 53 cents to the euro, still in fairly depressed territory and an indication that some investors still don’t expect to be repaid in full.

All three had to endure some wobbly years when Greek government bonds were in freefall. When the Eurobank LF Government Bond Fund was launched in March 2009 with a size of around €13 million, 10-year Greek government bonds yielded a measly 1.2 percentage points above German bunds—the yardstick for sovereign debt in Europe. That was a sign that investors believed Greek bonds to be pretty safe.

A year later, concerns over the perilous state of Greek finances sparked chaos across financial markets and brought Greece the ignominy of being the first euro-zone country to seek financial assistance from its neighbors.

As the Greek economy continued to shrink, private investors were asked to exchange their existing Greek government bonds for new debt with lower interest rates in March 2012 to trim the country’s debt pile. As investors fled the country, the yield spread over German bunds ballooned to more than 11 percentage points. The bond funds shrank fast.

“There were times when we wondered whether we would have anything left. It was a difficult period,” Mr. Papageorgakopoulos said.

Mr. Gikas echoed that sentiment. “The last few years have been the most challenging time of my professional life, more so than the period in the 1990s when the drachma was the currency and treasury bill yields were as high as 30%.”

Since the tumult, there has been more encouraging news. The new government has brought a sense of stability, and the European Central Bank’s pledge to do whatever it takes within its mandate to save the euro has allayed existential fears over the common currency, Mr. Simos said.

Greece isn’t out of the woods yet. The economy is forecast to shrink by 4% this year and unemployment remains high. But spending cuts mean the country is now expected to post a small fiscal surplus, before counting debt repayments, of €340 million this year. It is targeted to rise to €2.8 billion next year. The economy is forecast to grow by 0.6% in 2014, and talk of Greece being shunted out of the euro zone has dissipated.

Flows to Mr. Papageorgakopoulos’s funds have picked up pace over the past two months as volatility in Greek bonds has ebbed. Average daily inflows were about €92,000 between January and August, rising to about €140,000 in September and October, according to Mr. Papageorgakopoulos.

Mr. Simos said he is having discussions with potential investors as well as people based overseas who want to hear his views on the market.

“Confidence takes time to evolve, but things are gradually improving. Our view is that as long as Greece stays in the euro zone and the government continues to reform the economy, it will all prove useful in the end.” Mr. Simos said.

Source

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