Aegon extra-income bond fund manager David Roberts is reducing his exposure to longer-duration bonds, believing that there is better value in the shorter end of the market.
Speaking to Asset TV, Roberts said he has unwound the overweight position in longer-duration bonds he held at the start of the year, such as in 2055 gilts, and is now overweight in triple BBB and single A-rated short to medium-term corporate bonds.
He said the fund has a higher exposure to lower rated credit than most of his peers, but this is diversified across 75 holdings and is offset by his higher-quality exposure, mainly AAA-rated paper from the major banks.
Roberts said the fund generally avoided takeover candidates and leveraged buy-outs because credit ratings would fall but added that the team looked for comp-anies that are being approached by bigger and better-rated companies, citing Portman Building Society’s takeover by Nationwide.
Roberts said he expects total returns from bonds to come in at between 5 and 7 per cent next year and believes the monetary policy committee will keep inflation down at around 2 per cent.
He said: “We focus on playing a top-down and bottom-up approach. If the outlook is negative, we can preserve capital and reduce risk.
“If you are selective and careful, it is still possible to make money.”