Twitter icon Email alerts icon Latest News RSS icon Magazine icon Stay connected:

View the article online at http://citywire.co.uk/wealth-manager/article/a733973

AXA IM's Hayes slashed duration for shock protection

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

AXA Investment Managers’ Nick Hayes cut duration on his strategic bond fund at the start of the year as his nervousness over a financial shock rose.

The Citywire A-rated manager believes bond markets are in a scenario where risk-on, supported by forward guidance, remains the top trade in the hunt for yield. He struggles to see high yield delivering a total return of much more than 6% this year.

‘The economic environment is seen as gently positive and there has been a huge issuance of investment grade bonds, which is outstripping demand,’ he said an interview with Wealth Manager shortly before the recent correction in martkets.

‘The more this happens, the more concerned I get. Credit spreads are at their tightest level in five years and issuance has become speculative.’

Hayes fears an unpredictable event could cause a market correction where spreads widen and equities fall.

‘This may be earnings disappointments, or a political event in Europe,’ he explained. ‘This could cause people to ask why they are buying high yield, resulting in a repricing of risk and a rally in core government bond yields as people go for safe haven assets.’

Shock not priced in

He does not think bond markets are pricing in the risk of a shock and has positioned his portfolio more defensively. He has cut the fund’s duration from 4.5 years at the end of last year to around 2.75 years.

Hayes has bought short duration BB rated paper on a yield of between 2.5% to 3%, with maturity from six to 18 months. ‘We are as cautious as we can be and acknowledge that yields are low and the potential for attractive gains is not there. The risk reward is not in favour of adding more risk at the moment,’ he said.

‘Bonds with shorter maturity are not going to move in price if we get that shock. My biggest fear is buying risk at the wrong price and lots of people are doing that at the moment, which is why we’re more cautious. If spreads get higher we will look to take advantage.’

At least one fixed income sub-sector has delivered a minimum annualised return of 10% in the past 11 years, with high yield accounting for this return in four of the last five. But Hayes accepts this trend is unlikely to last.

Sign in / register to view full article on one page

leave a comment

Please sign in here or register here to comment. It is free to register and only takes a minute or two.

News sponsored by:

Sponsored Video: Bringing it all back home


As the UK coalition government strives to rebalance the national economy, so called 'reshoring' looks set to play an increasingly important role in economic recovery.

Today's top headlines

Investing for income in a changing environment


With talk on interest rates on the horizon, our latest roundtable debate covers income investing against a changing backdrop

More about this:

Look up the funds

Look up the fund managers

  • Nick Hayes
    Register or Sign in to receive email alerts for items in your favourites whenever we write about them

Archive

On the road

Click here to find out more from the Audience Development team.

Sorry, this link is not
quite ready yet