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L&G’s Hodges cuts back on gilts in dynamic bond fund

Legal & General fund manager Richard Hodges has cut the £1.5bn dynamic bond fund’s exposure to gilts and added to financial debt amid concerns that gilts will not offer value in an upturn.

Hodges has cut his gilt exposure from 20.7 per cent to 17.7 per cent since November and added that exposure into financial debt, including senior bank debt.
He says: “In the summer, we added to gilts and we took the interest rate sensitivity on the fund much higher to five or six years, albeit not high enough, to try to make the fund imm-une to the potential uncertainty over Greece. In this environment, where risk assets sell off, those assets with the most interest rate sensitivity generate the most returns.”

Hodges says he is now cutting gilt exposure, as real yields are negative and they do not offer any protection on the upside against any positive surprises on economic growth.

He says that he expects there will be a dramatic rise in gilt yields if there is an upturn in the market and values would fall.

Lift Financial joint chief executive Joel Adams says: “Gilts have been oversold over the past few years because of the security they offer to investors and it is natural we are now seeing a reversal in that.”

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