7IM’s Scott adds to credit holdings

Mr Scott said corporate bonds now represent roughly 25 per cent of his £241.2m CF 7IM Moderately Cautious fund, described as a “chunky overweight”.

Fixed income overall makes up almost half of the fund, with equities at 21 per cent.

“Our feeling through the autumn last year was that risky assets had a difficult time and were likely to remain volatile, but that perhaps the risk/reward [trade-off] looked particularly strong in credit, including high yield,” he said.

“We have now built positions to quite a considerable overweight, including in US and European high yield bonds and some sub-investment grade loans accessed through some closed-ended funds.”

Mr Scott has added a new position in the Carador Income fund, which invests in secured loan portfolios through collateralised debt obligation transactions, and increased his weighting in the $200m (£126.4m) Neuberger Berman Global Floating Rate Income fund.

The purchases have been funded through reductions in exchange traded fund (ETF) holdings, including the sale of an emerging markets ETF, which now means the portfolio has no exposure to emerging markets at all.

Mr Scott said the move to slightly reduce his equity exposure and increase credit was aimed at reducing risk in a “measured” way.

“Our feeling in our December strategic meeting was that we needed to tread carefully and that we needed to take some risk off the table in the medium term to reflect the volatile environment,” he said.

“But in the short term markets looked excessively pessimistic and therefore we thought that perhaps there was some scope for a recovery and some rationale in keeping some risk on the table.”