Christine Johnson, the manager of the Old Mutual dynamic bond fund has cut the portfolio’s exposure to investment grade by 15 per cent since taking over from Stewart Cowley on October 1.
Johnson, who joined Old Mutual Asset Managers from Halbis Capital Management, a subsidiary of HSBC, has instead upped the fund’s weighting in cash and gilts to 25 per cent.
She says: “Tactically I am concerned about how stretched corporate bond valuations look compared with external indicators. “Long-term I still like credit. The move out is just an exercise in taking some risk out of the fund and waiting for the market to adjust.”
As a result of having spent time as a credit analyst and running credit portfolios at HSBC, Johnson says she has more of a natural bias to credit and high yield than Cowley, who specialises more in currency and global bonds.
“DBF now has more of a bias to high yield, while I have also placed a greater emphasis on stockpicking, which was previously a lower priority,” she says.
Johnson says the fund will make increasing use of derivatives next year. This strategy will allow her to take positions in companies she does not like.
“At HSBC I used derivative overlays which allowed for greater flexibility and liquidity,” she says.
“For example, you can go negative duration and it allows trades to be more symmetrical. We can do this already, but it’s something I plan to a lot more of next year.”