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AXA IM's Hayes slashed duration for shock protection

by Dylan Lobo on Feb 13, 2014 at 14:04

‘You can’t have a continuous rally in high yield like we’ve had in the last few years. There is only so far credit spreads can tighten,’ he said.

In another defensive move, he has increased his cash weighting from 2% at the end of 2013 to 6% and he anticipates this rising to around 10% before he redeploys capital.  

The fund is currently yielding 4% and he accepts his more defensive approach is likely to result in a marginal fall in income. ‘We are happy to take risk off to effectively protect capital and after a shock event we can try to get some of that yield back.’

However, Hayes is not indiscriminately bearish, seeing emerging market debt (EMD) as one area where decent value can be found after a difficult 2013.

His exposure to the region is around 7% and he predicts this will go through 10% as he continues to reduce exposure to high yield developed market debt.

‘Following the repricing of emerging market debt last year, valuations are much more attractive and look more exciting than developed markets,’ he said. 

EMD gaining sophistication

He notes investors are starting to recognise the increased sophistication of the EMD market, which he feels got a little lost in the hunt for yield following the credit crunch.  

‘People have realised that one of the key attractions to emerging markets is that it is a number of mini-bond classes rather than a single asset class. It is possible to get high quality long duration in investment grade and sovereigns.

‘There are so many types of assets in emerging market debt and I think over the last year investors have started to realise this and you are slowly starting to see more differentiation in the region.’

Like many of his peers, Hayes is concerned about the impact that quantitative easing (QE) tapering will have on asset prices.

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