“We want exposure to things such as industrial and financial companies that are GDP sensitive, [but] you’ve got to accompany that with very short duration. We need to think very hard about how to protect capital.”
Richard Hodges, manager of the £1.8bn Legal & General Dynamic Bond Trust, said he had “haemorrhaged” risk in the fund down to the lowest level in 18 months, citing concerns that the current low-volatility environment is not sustainable.
However, he added that low volatility had allowed him to buy options cheaply to protect against losses.
“Everyone thinks we are moving in to a lower volatility environment, while to me [it is] bringing opportunities to hedge downside risk,” Mr Hodges said.