Colchester International Bonds Active

Colchester

Investment Style: Sovereign

Colchester Global Investors, Inc. is based in the UK and was founded in 1999 by Ian Sims (Chief Investment Officer), together with four other fixed income professionals who joined Sims shortly afterwards. Colchester is jointly-owned by its employees and Silchester, a boutique equities manager which assisted early financing. Colchester is a specialist fixed income manager and focuses on management of global (including emerging markets) sovereign fixed income portfolios.

Colchester has a value-oriented philosophy. The firm believes that investments should be valued in terms of the income they will generate in real terms. In effect, Colchester's philosophy is to find the developed and emerging market countries expected to provide the highest real yields. Colchester also actively manages currency risk in a primarily defensive fashion, but is keen to take relatively large positions at times of perceived long-term currency valuation extremes.

The house avoids corporate credit, believing instead that the sovereign opportunity set provides attractive diversity and return potential. However, the manager will buy some supranational and semi-government and agency paper where spreads are deemed sufficiently attractive and the credit risk considered negligible. Portfolios are constructed to reflect those opportunities with the greatest relative return potential for a given level of risk.

Colchester's investment process has three stages: inflation forecasting, currency selection, and portfolio construction. The firm devotes significant resources to inflation forecasting, combining both empirical modeling techniques and the judgements of its professionals. Real exchange rates, as defined by purchasing power parity, are the main focus of Colchester's currency research efforts. The house supplements this work with an assessment of a country's financial strength by analysing its current account, fiscal balance, and external debt.

Colchester believes it is important to meet with key participants in financial markets, and aims to meet with members of reserve banks, the IMF, key corporates, and local investors. These findings are an integral part of the inputs into inflation and currency forecasts. The firm constructs portfolios using an optimiser, with little regard to benchmark risk other than several broad benchmark relative constraints. This process is applied in a disciplined manner, using judgement where appropriate and ensuring that the final portfolio is consistent with the risk tolerance, constraints, and objectives.

Ian Sims is the Chief Investment Officer, and together with Keith Lloyd as Senior Investment Manager leads a small but senior specialist fixed income investment team.