Fixed Income  

GLG’s Mawby slashes high yield in favour of financials

GLG Strategic Bond fund manager Jon Mawby has slashed his high-yield exposure in favour of financials and cash, in a bid to mine better value from the fixed income universe.

The manager said his current strategy is simply attempting to maintain a disciplined approach to reallocating away from places that he feels are overpriced in order to find better opportunities.

As a result, since the start of the year, Mr Mawby has cut his high-yield assets from some 35 per cent to 15 per cent, while his allocation to financials has jumped from 35 to 45 per cent.

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“The potential risk versus reward ratio in the high-yield sector does not look like good value at present,” he said.

Mr Mawby added that US investment-grade bonds also look expensive, as do large parts of peripheral Europe.

“But there are certain parts of the market still offering decent value, such as financials as they have been deleveraging and need to have a greater capital buffer on their books,” he said

The fund manager has also hiked the fund’s cash weighting from circa 10 per cent to 15 per cent and has at the same time upped his exposure to interest-rate sensitivity via investment-grade corporate bonds, especially across the insurance sector.

But Mr Mawby said in spite of the move the portfolio still operated with a much lower exposure to interest-rate sensitivity than the typical fund.

Notably, while these asset allocation changes were taking place, Mr Mawby witnessed the portfolio’s assets under management swell significantly, from some £150m to circa £575m today.

From a liquidity point of view he says the extra assets have helped and during the influx, the fund’s performance has been maintained where, year to date, it is up 5 per cent against an IMA Sterling Strategic Bond sector average of 4 per cent.

The vehicle marks its third anniversary in November and has comfortably outperformed its peers since inception, delivering 34 per cent versus a mean of 21 per cent, according to data from FE Analytics.

Looking ahead he said: “Overall I am cautious, and that is reflected in the fund’s positioning. We are being increasingly tactical in our exposure.

“Liquidity in the market is generally good at the moment but that is a function of the near-zero interest rate backdrop. Going forward I do question how sustainable that liquidity will be, as the past four years have been a rarefied environment.”