Fixed interest funds are generally deemed to be dead boring, however swinging markets last year made them a challenge to manage

Armstrong Jones fixed interest manager Graham Ansell says there were two important calls to get right.

"The big call we made was to extend our duration almost close to limit in June last year and run it through to December," he says.

He says that position came about when the March quarter current account and gross domestic product data was released.

The current account numbers came out first and were better than expected, however the GDP data showed the economy was rapidly falling into recession.

"We went for it," he says. The portfolio was taken out as far as possible (it had never been done before) as there was a "substantial chance rates would fall." (They did).

While the strategy may sound risky AJ used options as insurance in case the call was wrong.

Ansell says the cost of this insurance was about 15 basis points shaved off returns.

Following the drop in rates, to historically low levels, the fund was moved to a short position as rates are now likely to rise.

Ansell says AJ are long-term fundamental managers who don't look to trade the market.

"We take our positions and run them for a long length of time," he says. Another feature of the fund is that it takes larger positions than its peers.

Royal & SunAlliance, which is once again runner-up to AJ, had a similar year. Fixed interest manager Fergus McDonald describes it as "a bit of a roller coaster".

Besides the rapid, and long fall in rates, managers had to deal with uncertainty in global markets, and the introduction of the Official Cash Rate.

McDonald says most of the portfolio's gains were made in the last six months of 1998 when "no-one really wanted a bar of the equity market."

"Bond markets love doom and glom, low growth, rates falling and inflation," he says. On that basis last year was had enough to make most bond traders happy.