Investors Run From Bond-Fund Contrarians as Big Bets Fall Short

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The Big Bet in bonds is bust. At least for now.

The latest example can be found in Franklin Templeton Investments, a firm with a contrarian streak that has made billion-dollar wagers on things including shaky energy and coal companies.

Those bets haven’t paid off, to put it mildly. Investors are responding to some hefty losses this year by yanking cash at an accelerating pace, pulling $2 billion from the Templeton Global Bond Fund and $1.5 billion from Franklin Income Fund last month alone, data compiled by Bloomberg show.

If Franklin is looking for company in its misery, it can look to Carlyle Group LP’s Claren Road Asset Management, which has faced withdrawals equal to about 48 percent of its $4.1 billion in assets after losses this year, according to a person with knowledge of the matter.

And who’s winning in the mishmash of economic data and central bank pronouncements this year? Funds that make tiny, fast bets while avoiding big macro views, such as Pine River Capital Management’s $1.1 billion Liquid Rates Fund, which returned 7.9 percent in 2015 through Aug. 31, according to HSBC Holdings Plc data.

The significance of who’s winning -- and who’s losing -- has vast implications for the composition of the bond market over the next year. Investors can no longer simply win by following central banks, which are more fickle and less powerful than they once were.

It explains why many investors are hiding out in the safest government debt instead of contending with a bunch of wild cards -- such as oil prices that just won’t follow any predictable pattern and an increasingly volatile global stock market.

This has been a trap for many strong-minded investment managers, who’ve been happy to buy assets that almost no one else wants.

The gunslingers may eventually prevail again some day in the future. For now, it pays to grind it out.

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