F&C multi-manager Rob Burdett has said his fixed income holdings are more diverse than ever as he and colleague Gary Potter deal with ultra-low yields across various types of bonds.
The manager said in the five-strong Navigator fund range, there were now no pure investment-grade holdings and only one dedicated high-yield offering.
Mr Burdett said his views about fixed income markets were probably shared across the industry, although he questioned whether others had portfolios as diverse as his.
“I think there is probably more variation in our portfolios than ever but there is more available to us as well,” he said.
The manager added that the bulk of his fixed income holdings were in strategic bond funds, products that allow managers to invest across the fixed income spectrum.
“We always think multi-manager is about getting an expert between us and the asset class,” he said.
“Strategic bond managers get a broad brush and can use that to their advantage. If rates go up, then down and up again, strategic managers have the possibility of capitalising on that.”
Mr Burdett said he had recently, however, rotated proceeds from the sale of the Old Mutual Global Strategic Bond fund from his £265m MM Navigator Moderate and £91.2m MM Navigator Progressive funds into the Ignis Absolute Return Government Bond fund.
The Ignis product, run by head of rates Russ Oxley, chief economist Stuart Thomson, senior portfolio manager Adam Purzitsky and manager Paul Shanta, has leapt to nearly £3.4bn in size since launch in March 2011.
The fund aims to deliver positive total returns on a rolling 12-month basis that are independent of bond and equity market conditions, something that investors are currently attracted to.
Given yields in fixed income are extremely low and western interest rates are at historic lows, the direction for yields and rates is likely to be upwards.
Yields move inversely to prices meaning bond managers lose money when yields and rates rise. An absolute return fund can, however, use derivatives to help it benefit if yields rise.
The manager said before he added the fund to his portfolio, he spoke to both Ignis and Standard Life Investments, which last week bought its Scottish rival, to ensure the team would remain in place.
Mr Burdett said his funds were close to their lows in terms of fixed income exposure because parts of the market kept rallying and becoming expensive.
“We had investment-grade corporate bonds and now we are reducing high yield,” he said.
“We did have some floating-rate notes, but that came in so we have since looked to other areas such as infrastructure loans.”
