A bold contrarian
In financial markets the contrarian investor buys when most others are selling and sells when they are buying. The contrarian bets against the trend and boldly challenges the market consensus. Michael Hasenstab, a US fund manager who oversees $165 billion (€127 billion) in bond investments worldwide for investment firm Franklin Templeton, is a true contrarian.
His Templeton fund has slowly accumulated a sizeable stake in Irish sovereign debt – 10 per cent of the Irish bond market. So far the fund has reaped billions in paper profits and further enhanced Mr Hasenstab’s stellar reputation as a bond trader. However, his €8.5 billion investment in Irish government bonds also represents a major vote of confidence in an Irish economic recovery.
Investment success is based on unique insight and analysis, in seeing what other investors may have missed, or overlooked. Mr Hasenstab in assessing Ireland’s economic woes concluded that the financial risk of sovereign default was less than potential investment reward of economic recovery. Ireland differed, he felt, from other bailout countries, like Greece and Portugal. Ireland had a competitive economy, and a flexible labour force. Its banks had been quickly recapitalised, and Irish people had accepted tough fiscal austerity measures.
In July 2011, after credit rating agencies had cut Ireland’s sovereign debt rating to junk status, the yield on the 10-year benchmark bond soared to over 14 per cent. Panicked sellers dumped Irish debt at distressed prices. And Mr Hasenstab made what he has described as “one of the best investments of the decade, the Irish turnaround”. Bond investors make money when bond prices rise and bond yields – the interest rate – fall. Irish yields have dropped to under 5 per cent, greatly helped by Mr Hasenstab’s bond purchases. Ireland, its borrowing costs greatly reduced, is well placed to leave the EU-IMF programme next year, and regain access to debt markets closed for three years. Thank you, Mr Hasenstab.