Passive expert Justin Onuekwusi has upped his exposure to active fixed income managers on the view security selection will perform better amid unstable markets.
Mr Onuekwusi runs Legal & General Investments’ five-strong Multi-Index fund range, which invests in a mix of the company’s tracker funds chosen by the manager.
The risk-rated funds offer passive exposure to equities and bonds and have, since their launch in August last year, used the group’s active property funds to access that asset class.
But Mr Onuekwusi has now brought some of his colleagues’ active fixed income expertise into his fund range with positions in the £1.5bn High Income Trust run by Martin Reeves, and the LGIM Global Corporate Bond fund managed by Anton Eser.
In early October, Mr Onuekwusi had added exposure to global corporate bonds diversifying relative to UK credit.
Mr Onuekwusi, who runs the funds with Bruce White and Martin Dietz, said active managers should do better given the wild fluctuations in markets of late, as they are able to pick the bonds they invest in, as opposed to following an index of bonds.
The high yield sector struggled in recent months but has started to improve. The IMA Sterling High Yield sector had negative net retail sales from March to August, but has tipped back and had positive numbers in September, according to IMA data.
Mr Onuekwusi thinks investors sold out too early in the year and expects more money to flow back into the sector.
The manager said the yield on bonds issued by high yield companies was more protected when interest rates rise and he also thought such businesses were less at risk of default than the general market thinks.
Other market participants think that when it comes to fixed income, active investing is the best option.
Jason Hollands, business development and communications director at Tilney Bestinvest, said passive investing was the wrong approach to fixed income as it “simply rewards highly indebted issuers” with a ready source of capital.
“Bond investing should be based on an assessment of the yield on offer and the level of security that you’ll get your money back at the redemption date,” he said.
“But passive investing in bonds leads you to be invested based on the size of the bond issue, and the extent to which those bonds are overvalued and trading above their redemption price.”
In terms of interest rate expectations, Mr Onuekwusi said LGIM had put back its interest rate forecasts to May, which is ahead of the consensus.
Mr Onuekwusi joined Legal & General in June last year from Aviva Investors, where he ran five risk-rated multi-asset funds.