The bond market is presently experiencing a transformation characterized by low interest ratesAs global economies adapt to these shifting financial landscapes, the implications for investors and the strategies employed to navigate this new phase are criticalThe decline in government bond yields has begun to level the playing field in terms of duration spreads, credit spreads, and term spreads, making traditional income leverage strategies increasingly challenging to implementConsequently, the bond market is not only characterized by lower rates but also higher frequency of fluctuations, presenting new challenges and opportunities for investors.

At this juncture, investors are primarily seeking stable and foreseeable returns, a demand that has only intensified after the financial upheaval experienced in October 2022. Many individual investors have turned to pure bond funds as a favored vehicle, although they have tempered their return expectations significantly

Newer entrants to the market are now acutely aware of the risks associated with fund net value fluctuations, emphasizing the necessity for more refined investment strategies.

In such a low-yield but volatile market environment, the common dilemma facing bond investors is how to secure attractive returns with relatively lower drawdownsSome opt for static approaches, searching for bonds that offer better value, while others may pursue dynamic trading strategiesEach camp represents a different school of thought as they strive to balance risk and reward in an increasingly uncertain financial landscape.

A response to this dilemma has been provided by the bond investment team at GF Fund ManagementThis team combines fundamental analysis with systematic trading strategies—a dual approach that aims for precision at every stage of the investment process

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In terms of fundamental research, the team conducts in-depth analysis of the underlying factors impacting the bond markets, focusing on short, medium, and long-term interest rate trendsWith a solid foundation of macroeconomic indicators and market research, the investment team is adept at adjusting duration and timing, dynamically managing portfolio structures to seize trading opportunities.

With over eighteen years of experience in fixed income asset management, GF Fund’s bond investment team consists of a diverse group of fund managers who share a common goalTheir track record shows that key team members have extensive experience in bond trading, which fosters a shared understanding of seeking excess returns through trading, while each individual's unique strengths, honed through different investment research roles, contribute to the group's success.

Among these team members, seasoned fund managers like Song Qianqian, Dai Yu, and Fang Kang boast over twelve years of experience in the securities industry, having managed investment portfolios for more than seven years

They have navigated multiple cycles of bullish and bearish trends, developing trade strategies across sector rotations and duration adjustments to capitalize on finely-tuned dynamic returnsThe younger generation of fund managers, such as Hong Zhi, Lang Zhendong, and Zhao Ziliang, have cultivated their skills through positions in macro strategy, credit analysis, and trading, gradually enhancing their ability to capture trends through trading strategies.

Promoting a philosophy of "stability first, lasting value," GF Fund’s bond investment team prioritizes risk management, using asset allocation as a shield and trading as a spearThey diligently seek to maximize risk-adjusted returns by combining fundamental research with an investment trading framework, committed to exploring the intricacies of bond investing within the new paradigm of wealth management.

Enhancing returns through credit spread trading

In the realm of pure bond funds that have been leaders in mid to long-term performance, some managers have gained excess returns through aggressive credit strategies, particularly by heavily investing in urban investment bonds, while others adopt more flexible transaction strategies

Song Qianqian, manager of the GF Pure Bond and GF Jingning funds, exemplifies the effectiveness of trading strategies in driving performance.

"I prefer to utilize credit spread trading strategies to enhance returns," says Song QianqianThis strategic focus aligns closely with her past experiences in bond trading and bespoke investment, which have shaped her investment styleAfter entering the field in 2011, Song Qianqian worked in various roles within brokerage firms and fund companies, developing a self-directed trading style that capitalizes on changes in market liquidity and institutional behavior.

After transitioning to manage private accounts in 2017, she catered to a client base that favored high credit quality but was open to longer durationThis environment afforded her the opportunity to leverage pricing differences for excess returns

By 2020, when she became a public fund manager, she maintained her focus on trading credit spreads, showcasing strong historical performanceAs reported by Haitong Securities, the GF Pure Bond and GF Jingning funds achieved annual returns of 5.80% and 5.61%, respectively, placing them in the top tier for their category, with controlled volatility rates of 1.02% and 0.89%.

Analysis by Haitong Securities attributes Song Qianqian's successful management to three key factors: firstly, she maintained a mid-to-high levered portfolio, with leverage levels around 125% from Q1 to Q3 of 2023; secondly, she capitalized on niche investment opportunities through strategic buy-sell transactions, exemplified by her handling of bank perpetual bonds; and lastly, her portfolio primarily consisted of credit bonds, which allowed her to capitalize on robust market conditions over the past year.

In summary, Haitong Securities contends that Song Qianqian’s management style for pure bond products is marked by a steadfast approach that emphasizes trading strategies for maximizing returns

Her portfolio strategy involves low frequency and low amplitude adjustments in leverage and duration, predominantly focusing on medium to high grade credit bonds and actively engaging in trading positions to navigate fluctuations in spread movements.

Seeking absolute returns through bond market cycles

It takes ten years to hone a skillAmong the constant talent migrations in the public fund industry, few fund managers have consistently managed the same fund for a decade, and Dai Yu is one such exceptionSince entering the industry in 2005, Dai Yu has spent 19 years in bond research roles, and his management span extends to 16 yearsThe funds he manages, GF Juli and GF Shuangzhai Tianli, have been established for over a decade, with his tenure at 12 and 9 years, respectively.

Dai Yu’s extensive experience has translated into exceptional mid-to-long-term performance for his funds

For instance, as of December 31, 2023, GF Shuangzhai Tianli has achieved an impressive cumulative return of 64.91%, starkly outperforming its benchmark return of 22.87%. Over the past eleven natural annual cycles, the fund has consistently delivered positive returns for a decade, evidencing its robust performance under his stewardship.

Regular fund reports indicate that GF Shuangzhai Tianli predominantly invests in credit bonds, with a diverse range of configured instruments, including government bonds, interbank certificates of deposit, policy-backed financial bonds, corporate bonds, and asset-backed securitiesHowever, the focus of these investments has varied by market conditions; for example, during the bond market bull run from 2015 to mid-2016, the fund concentrated on corporate bonds, while at the end of 2016, as market conditions shifted, it adapted its strategy by allocating 40% to interbank certificates to mitigate risk