Nomura Asset Management’s Dickie Hodges has increased his cash position to almost 25 per cent in the belief that investors’ craving for certainty is unlikely to be satisfied in the short term.
Mr Hodges, who runs the £110m Nomura Global Dynamic Bond fund, has raised his cash weighting from 12 to 25 per cent in recent months.
The position was reduced slightly to nearer 24 per cent as the manager made purchases last week.
But he remains sceptical of the opportunities available at a time when investors are awaiting clarity over the timing of a US interest rate hike.
“What this market needs is certainty,” he said.
“People are reluctant to invest, and when you add that to declining liquidity [in the bond market] it is creating a vicious circle.”
Mr Hodges, who joined Nomura last November after leaving Legal & General Investment Management in spring 2014, said the significant volatility in Asian equity markets was having an impact on bonds, too.
“The ‘overnight risk’ is so high at the moment; it is affecting all asset classes,” he said.
The manager pointed to the performance of recent corporate bond issuance as evidence of this uncertainty.
“The issues that have come to market in the past three months have lost value since then. Most have also been unattractively priced,” he added.
He said the only way to resolve the situation would be for the US Federal Reserve “to come out and say we are holding rates and they are not going up for six months”.
Mr Hodges remained sceptical over the prospect of a rate rise this year. He thought that deteriorating global growth prospects had yet to be factored in by investors.
In spite of these concerns, the manager’s fund retains healthy allocations to both financials and high-yield debt, at 40 and 21 per cent of his portfolio, respectively, as of August 31.
The manager said his hedging strategy had helped prevent these positions from being unduly hurt during the recent market turmoil.
The fund has shed 4.2 per cent since launch on January 30 2015, compared with the average loss of 3.6 per cent for its offshore global bond fund peer group, data from FE Analytics shows.
Mr Hodges said he found it too difficult to accurately value commodity trader Glencore to take advantage of a slump in the value of the company’s bonds.
Glencore’s shares plunged 25 per cent last Monday (September 28), and the spread between its bonds and safer investments widened materially following a bearish broker note from Investec Securities.
The manager has also shied away from the car sector, which suffered at the end of last month after Volkswagen admitted it had manipulated emissions tests in the US.
