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Asset Allocator

from Asset Allocator

Wrong headed

Asset Allocator has been on the Christmas drinks circuit, while our livers have been drafting a resignation letter. 

And between sips of unreasonably priced City lager, we decided to follow up on one of the trends we covered recently: that of DFMs reducing exposure to strategic bond funds during 2022 and instead buying more discrete strategies such as Emerging Market debt and High Yield bond funds.

So we asked a couple of DFMs what they think is behind the trend. The answer coming back is that many of the better known strategic bond funds went into 2022 with long duration positions which have proved to be loss makers.

As strategic bond funds are typically several basis points more expensive than the alternative of effectively building your own bond positions, both the DFMs to whom we spoke have been looking elsewhere (ultimately someone has to keep these bond fund managers in Chateau Petrus).

The most widely owned high yield bond fund on our database is Axa Short Duration US High Yield, which appears in five portfolios.

An interesting point to note here is that Baillie Gifford High Yield has had clients heading for the exit in 2022, with five sellers. That fund was bottom quartile in 2021, and has lost 13 per cent this year to date, a period when the sector average loss is 10 per cent.

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