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Equity move aims to bolster returns on fixed interest

Multi-manager Smith and Pinching Portfolio Management has added a small weigh-ting in direct equities to its fixed-interest fund to boost returns.

The company’s review of the first quarter shows the fixedinterest fund outperformed its benchmark, the FTSE British Government All Stocks Index, by 2.54 per cent. In this period, investment-grade exposure was increased while the managers adhered to a strict buy and sell discipline for high-yielding direct equities.

SPPM says a small weighting in direct equities produces better risk-adjusted returns, particularly as equities have benefited at the expense of bonds due to rising interest rates in the past 12-15 months.

Its strategy is to buy stocks on the basis that their yields are higher than sub-investment-grade bonds but the managers will automatically sell the stocks when better investment opportunities are identified.

At the current stage of the economic cycle, SPPM thinks it is difficult to call the investment and sub-investment-grade markets. As a result, it has increased its exposure to strategic bond funds by topping up its weighting in the Artemis strategic bond fund.

It has also added to its position in Gartmore’s high-yield corporate bond fund and increased its holding in the Baillie Gifford high-yield fund.

SPPM investment director Tony Yousefian says: “Only a handful of managers operate strategic mandates. Some also employ credit default swaps that enable them to take positions on duration. That is the reason we have element to invest in strategic managers.

“We also increased our high-yield position on the grounds that although we expect default rates to pick up, the market is likely to benefit from companies’ strong balance sheets for some time.”

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