BlackRock head of UK retail sales Jeremy Roberts believes bond funds need to be smaller to succeed in the current market conditions.
Fixed income has suffered outflows this year, with the the space suffering £624m in net redemptions during July according to Investment Management Association figures.
Roberts thinks bond funds need to be more “nimble” to react to the difficult market conditions and points to the size of these funds as an attributing factor.
Roberts says: “In the world we find ourselves in, with low rates and low yields, the traditional approach to fixed income is not going to work as it has done in the past few decades.
“You need to be flexible. The size of funds is something we are extremely careful about. The most important thing is to be able to continue for the client.”
In last year’s The State of the Universe report, Premier Asset Management multi-asset manager Simon Evan-Cook argued that ‘big is best’ is a “dangerous assumption” for investors to make and said a massive fund can “severely constrict” a manager’s process.
Evan-Cook told Fundweb in February: “People really need to stand back and take a look at whether the amount of money they have taken in is compromising what they do.
“Is it forcing equity managers up the market cap and away from the smaller companies that used to generate most of their alpha? Is it turning bond fund managers from credit analysts into macroeconomic analysts?”
Several industry commentators have also raised the issue of liquidity risk with large bond funds, fearing their size will make it more difficult for them to meet redemption requests should investors decide to leave the asset class behind.