Threadneedle Investments head of multi asset allocation Toby Nangle has slashed exposure to high-yield debt within his fledgling Threadneedle Dynamic Real Return fund.
Launched in June, the £49m fund had a 10 per cent weighting to high-yield debt last year but now Nangle has reduced this to just under 1 per cent.
Nangle favours equities instead as he believes there will be an upside from potential earnings growth due to a lack of correlation between bonds and equities.
Nangle is concerned a per-iod of “policy normalisation” means asset allocation needs to be approached differently.
He says: “We are getting exposure to earnings growth and we have scaled down our high yield exposure.
“Equities will deliver long-term rewards because they are the riskiest part of the strategy and we are looking at a stron-ger earnings environment.”
Three Counties IFA Andrew Alexander says: “High yield is a very crowded trade as it is the only area of fixed income you could get some real returns.
“Everyone is going there so it is becoming quite frothy and we are now seeing some dodgy issuances coming to the market.
“It is quite refreshing to see a manager do this and take a volatility position based on relatives here and now.
“More managers should be chopping their weightings around, it is what we pay them for – to be active.”