Aberdeen’s multi-managers have overhauled their fixed income holdings by ramping up exposure to strategic and absolute return mandates.
Co-head of multi-manager Aidan Kearney said he had removed “directionality” from the fund range and invested in several strategic and absolute return bond funds, including Richard Hodges’ £1.7bn L&G Dynamic Bond fund and Ariel Bezalel’s £1.5bn Jupiter Strategic Bond fund.
The funds have little exposure to wider swings in the bond market, instead focusing on ‘alpha’ bets on individual securities.
Mr Kearney said: “Most [bond] managers say they will clip the coupon this year and not get much more, so if we can get high single-digit returns and be ready for the next stage it is worth getting the positioning in place now.
“This move might be a bit early but we think it is the right structural shift.”
The managers have also bought into the Threadneedle Global Opportunities Bond fund, run by the company’s head of fixed income Jim Cielinski, alongside Ignis’s £801.6m Absolute Return Government Bond fund, to give some downside protection in case bond prices start to fall.
As part of the changes Mr Kearney said he had sold holdings in the Invesco Sterling Bond fund, run by Michael Matthews, and the Bluebay Investment Grade Bond fund.
However, Mr Kearney said there was no way of knowing when any bond market pullback would happen, as quantitative easing was likely to continue to push prices higher – and therefore yields lower – for some time.
“I expect the liquidity will force markets higher and that will last until it doesn’t,” he said.
“Equities are cheap relative to bonds, but bonds are expensive, too – there are no compellingly cheap asset classes. Markets are re-rating upwards, but at what point does the market decide that it has paid enough for these companies?”
Several advisers last week raised concerns about some strategic bond funds’ more illiquid holdings, and Mr Kearney agreed that investors should be “wary” of the hunt for yield driving managers into more niche areas of the market.
“You’ve got to look at the quality [of the holdings] and make sure you don’t get a concentration of any one investment,” he said.
Elsewhere in the Aberdeen multi-manager range, Mr Kearney pointed out that many of his equity funds had been chosen to perform a similar function to the new bond fund holdings, representing a blend of strategies to cushion against equity market falls.
The managers have also bought futures contracts on the S&P 500 and FTSE 100 indices to provide further protection if the benchmarks suffer a pullback in the coming months.
The prospect of this has become more likely in the minds of some market commentators, as both bourses continue to push to fresh record highs.
The Aberdeen team’s biggest fund, the £323.4m Multi-Manager Cautious Managed fund, has gained 27.2 per cent in five years, marginally outperforming the IMA Mixed Investment 20-60% Shares sector, according to FE Analytics.
