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Skandia and OPM split on strategic equity exposure

Skandia Investment Group and OPM Fund Management are split over whether strategic bonds should have a high exposure to equities.

Under the Investment Management Association’s definition, strategic bonds are allowed a 20 per cent exposure outside of sterling fixed-interest securities.

SIG head of investment res-earch Adam Smears, who runs the £142m Skandia strategic bond fund, says 20 per cent is too high. He says: “Equity has significantly more volatility than fixed income. Around 20 per cent allocation to the higher volatility asset class means it will dominate the returns of that portfolio. To me, this type of fund is more like a multi-asset fund than a bond fund.”

Smears says a 10 per cent exposure to equities sounds more sensible.

The Skandia strategic bond fund has a 9.8 per cent weighting in the £6.3bn M&G optimal income fund, which can hold up to 10 per cent in equities.

But OPM Fund Management chief investment officer Tony Yousefian says the flexibility to hold a 20 per cent weighting in equities is essential to strategic bond funds.

Yousefian, who runs the £38.4m EFA OPM fixed-interest fund, has a 9.5 per cent exposure to equities through an 8.5 per cent position in structured products and the rest made up of a position in the £553m Artemis high-income fund, which can hold up to 20 per cent in equities. He says: “Strategic bonds should be flexible to invest in any asset class within sensible limits.”

Equilibrium Asset Management investment manager Mike Deverell says: “I do not like it when strategic bond managers invest in equities as the funds may take on more risk than investors expect.”


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