Strategic bond managers go bearish

Strategic bond fund managers have become more cautious in their holdings in light of the unstable economic outlook.

Henderson head of retail fixed income John Pattullo, manager of the company’s £1.1bn strategic bond fund, is holding 12-13 per cent in cash, up from 8-9 per cent in the autumn, and plans to buy credit derivatives.

Pattullo says: “This gives us more flexibility to invest if the market is to sell off and we can buy and sell risk very fast.

“We have taken 10 per cent out of investment-grade finance bonds and put it into cash. At the end of the year, I could cut high-yield bond exposure from 50 per cent to 30 per cent.”

Jupiter’s Ariel Bezalel, who runs the £418m strategic bond fund, says: “We had 65 per cent in high-yield bonds at the beginning of the year and now we have less than 50 per cent.”

Bezalel has instead been adding to the fund’s exposure to Australian government bonds, from 13-14 per cent to 20 per cent over the last two to three months.

In terms of the £572m Jupiter high-income fund, Bezalel brought down the high-yield exposure from 60 per cent to 50 per cent a few months ago.

In contrast, Standard Life head of credit and aggregate Andrew Sutherland, manager of the £78m strategic bond fund is planning to double high-yield bond holdings over the summer from 25 per cent. “Highyield bonds work well in a steady low-growth, low-interest-rate environment,” he says.