Martin Steward spoke to Stratton Street Capital, which believes that a sovereign’s wealth determines the performance of its bond and currency markets
Homespun wisdom suggests two types of people you should not lend to: friends and family; and anyone who needs the money.
Institutional investors tend not to have to worry about the first, but they have plenty of exposure to the second. Witness the common criticism of standard bond indices: market capitalisation weighting means a bias to the most indebted bond issuers.
Stratton Street Capital is a bonds specialist that takes the relative wealth of the countries it lends to more seriously than most. But it does not focus on the debt-to-GDP ratio. Instead, it looks at net foreign assets (NFA) – the value of the assets a country owns abroad minus the value of the domestic assets owned by foreigners.