Becker emphasizes the importance of diversification. A portfolio limited to U.S. assets is highly correlated with the nation’s business cycle, inflation, and Treasury issuance. He points out that challenges in one country can be balanced by positive developments in another. For example, 2022 marked a challenging year for U.S. bonds as the Federal Reserve raised interest rates to combat inflation. “A more diversified portfolio provides greater stability and diversification across various interest rate cycles,” Becker explains. “You’re enhancing your yield while reducing volatility.”
Since its launch on June 25, GGOV has maintained a significant allocation to U.S. Treasurys, which accounted for 33% of the fund as of October 10. While the recent U.S. government shutdown does not directly affect the fund’s strategy, it highlights the necessity for diversification. Becker describes the shutdown as “a symptom of rising uncertainty regarding the funding, spending, and issuance path for the U.S. Treasury in the coming years,” reinforcing the benefits of broadening fixed-income allocations across global sovereigns.
To enhance yield and mitigate volatility, GGOV employs a hedging strategy to eliminate currency risk. Becker explains, “Without removing currency risk, our performance would be influenced by fluctuations in the dollar/yen or dollar/euro exchange rates.” By hedging, the fund gains structural exposure to a diverse range of issuers without the burden of currency risk, leading to a yield uplift. For instance, when purchasing a German Bund yielding 2.5%, Becker sells U.S. dollars to buy euros, then hedges back to eliminate currency exposure. This strategy allows him to benefit from the interest rate differential between the European Central Bank and the Federal Reserve.
When seeking investment opportunities, Becker favors central banks that are cutting rates and looks for countries with low and moderating inflation to secure attractive real yields. He notes that U.S. inflation has yet to reach the Federal Reserve’s target of 2%, partly due to expansive fiscal policies. “Running large budget deficits tends to drive higher inflation,” he observes.
Becker believes that future Fed rate cuts are already priced into the Treasury curve, but the market may be misinterpreting the central bank’s reaction function. He points out that the recent meeting saw only one dissent, indicating a commitment to maintaining the institution’s credibility in fighting inflation. “If the U.S. economy remains strong, inflation will complicate the Fed’s ability to implement rate cuts,” he adds.
In his investment strategy, Becker is particularly interested in European bonds, as he anticipates challenges for companies in maintaining pricing power due to U.S. tariffs. He has been actively purchasing German Bunds and has recently added French government bonds to his portfolio. Despite the heightened risk premium in France due to its political climate, Becker believes that the inflation-adjusted yields on French bonds are appealing following recent sell-offs.
Within emerging markets, he favors government bonds from Mexico and China, citing low and declining inflation in Mexico and negative inflation in China as attractive factors for investment.
