Ken Fisher’s Firm Seen Behind $4 Billion Contrarian Bond Trade

Billionaire Ken Fisher’s eponymous firm appears to be betting that the longest-dated US bonds will rally, a contrarian stance that seeks to capitalize on yields close to their highest in two decades.

Fisher Investments was the driving force behind a record $4 billion influx of cash earlier this month into a BlackRock Inc. exchange-traded fund that invests in US Treasuries dated 20 years or longer, according to analysts and data reviewed by Bloomberg. That was accompanied by a similarly-sized outflow from a separate BlackRock Treasury fund with a shorter average maturity, suggesting a switch to further out the yield curve.

A spokesperson for Fisher Investments said the firm cannot comment on individual securities due to its fiduciary duty to clients. A BlackRock representative declined to comment.

The move came as US 30-year yields traded around their highest levels since 2007. While that has been a bruising experience for bondholders, since prices move inversely to yields, it offered a potentially attractive entry-point for those confident the selloff was overdone.

“It would appear some model of theirs went longer on duration,” said Todd Sohn, chief ETF strategist at brokerage firm Baird Strategas. “Nobody else can move those funds in size like that.”

The shift out the curve earlier this month was ahead of the US Treasury unexpectedly announcing Wednesday it was boosting buybacks of long-dated government debt. That sparked a rally in the long-end, sending 30-year yields tumbling 10 basis points.

Ken Fisher built the firm over decades through outspoken views on investing and prolific marketing — whether by direct mail, on television, in books or online. The sales machine has helped the firm amass $441 billion in assets, with Fisher himself now worth more than $12 billion, according to Bloomberg calculations.

ETFs offer an easy way for investors to gain access to a certain asset class, in this case long-end Treasuries. The flows are an example of how a single large wealth manager can swing billions of dollars in assets in a single day by shifting from one strategy into another.

The data behind the recent flows point to the Plano, Texas-based firm because it held around $15 billion worth of shares in the iShares 7-10 Year Treasury Bond fund (ticker IEF), according to filings for end-June. That made it by far the largest owner of IEF and the only firm capable of generating a $4 billion outflow, according to holdings data compiled by Bloomberg.

To be sure, the trade would only form a tiny part of Fisher’s total assets, the bulk of which it manages for individuals and families as part of its private client business. The ETF flows don’t necessarily reflect a firm’s overall positioning as there may be offsetting trades.

Yet Fisher Investments’ recent commentary to clients suggests a view that long bonds offer compelling value. An article published on Aug. 12 titled ‘Why Treasurys Aren’t in Trouble’ said this year’s rise in inflation was not broad-based but instead driven by surging energy prices emanating from the Iran war.

“Rates may be at the upper end of the multi-year range since 2022, but that is largely a function of false inflation fear tied to the war,” the article, attributed to the firm’s Investments Editorial Staff, said. “Inflation expectations are a key factor swaying long rates. Hence, we wouldn’t expect hotter inflation or materially higher rates.”

Fisher Investments has had minimal positioning in the iShares 20+ Year Treasury Bond ETF (TLT) in recent years, according to filings. The fund — dubbed a “widow maker” by some in the industry — has been a popular vehicle for investors looking to pick a bottom in the long bond selloff, though many dip buyers have been burnt as yields continued to rise.

Swapping IEF for TLT amounts to a meaningful addition of duration risk, or a fixed-income portfolio’s sensitivity to changes in interest rates. In short, should yields fall, TLT should rally more, but the opposite is true should yields rise.

“If it works, the payday will be pretty good,” said Eric Balchunas, senior ETF analyst at Bloomberg Intelligence. “It’s high risk and high reward, whereas others are putting money into the front end of the curve for the yield there with less of the risk.”

This article was provided by Bloomberg News.