LGIM’s Hodges has ‘lowest ever risk’ in Dynamic Bond

Legal & General Investment Management’s star £1.4bn Dynamic Bond fund manager Richard Hodges has said he is running the lowest level of risk he has ever taken in his five-year tenure on the vehicle.

He has a 25 per cent weighting in UK government bonds and 15 per cent in cash - equating to 40 per cent of the fund now held in ultra-low risk assets.

Speaking at a Chelsea Financial Services investment dinner last night, Mr Hodges said markets had become “addicted” to liquidity and now simply rise when liquidity is provided and fall when it is withdrawn.

Because of this, the manager said he had been selling riskier assets throughout the year and is continuing to buy government debt.

“All I have done since January is sell,” he said.

“[UK gilts] offer no value, so why do I buy them every day? Because I can’t bring myself to buy anything else.

“The fund is up year-to-date and all I have done is sell and reduce risk. I am running the lowest level of risk since the day I started the fund in April 2007.

“The hardest decision is not to buy. It is easy to buy as it takes no effort or thought.”

Since launch on April 30 2007, the Dynamic Bond fund is the best performer in the sector with a return of 53.7 per cent compared with the sector average of 20.5 per cent, Morningstar said.

Elsewhere, the manager has 20 per cent invested in high yield and 28 per cent in corporate bonds, split almost equally between financials and non-financials.

Mr Hodges said the level of asset price manipulation by central banks - keeping sovereign bond yields artificially low through quantitative easing - is the “biggest” he has seen in his 25 years in fund management.

The manager said he would be likely to increase risk if more liquidity was pumped into markets.

“At the next long term refinancing operation (LTRO), I would sell and when Greece defaults you want to buy,” he said.

“The trick will be to sell as soon as the injection comes. The only way assets go up is with a liquidity injection.”

Year-to-date, the fund has returned 11 per cent compared with an average return of 9.4 per cent by the IMA Strategic Bond sector, according to Morningstar.