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Does Dickie Hodges L&G exit have implications for strat bond funds?

by Eleanor Lawrie on May 07, 2014 at 14:25

Does Dickie Hodges L&G exit have implications for strat bond funds?

Dickie Hodges (pictured) is the latest high profile fund manager to shock the industry with his plans to exit Legal & General IM after seven years.

As lead manager of the £2 billion Legal & General Dynamic Bond trust , he was known for his conviction-led approach and expertise on both long and short side. Hodges will remain at the firm until October, to complete the transition to L&G senior bond manager Martin Reeves.

Investment managers and fund researchers who back Hodges’ fund now face the quandary of whether to hold steady with the position or use his exit as an opportunity to reassess their strategic bond positioning. 

In a sector dominated by a number of behemoth funds, some could be forgiven for fearing that potential redemptions from the Legal & General Dynamic Bond trust could flow into the incumbents. Alternatively, investment managers may choose to reallocate to a smaller, up and coming fund.

Rob Harley, senior research analyst at Bestinvest, said Hodges’ departure could represent an opportunity to consider a shift out of fixed income altogether, given how far spreads have come in.

‘You have to take a step back and look at the whole fixed income universe, and ask what is there to play for?’ he said.

‘The dispersion of returns is going to narrow materially and the ability of these managers to add alpha is diminishing. It’s difficult to see where the next big trade is coming from. We had the financial and the peripheral trades last year, but they have been squeezed out of the market.’

If investors want to remain in the strategic bond sector, Harley favours M&G’s Richard Woolnough, who is Citywire A-rated and runs the £20 billion Optimal Income fund. At the end of March he had 6.1% of the fund in equities.

‘He can’t do as much as he did given the fund’s size, but he is the ultimate strategist and still worth investing with,’ Harley said.

‘He gets it right more than anyone else. He uses equities, but so what? It’s a good option to include equities because they are more liquid and it gives him additional flexibility.’

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