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GLG bond duo refuse to become 'volatility hostages' and cut duration
by Sarah Miloudi on Jan 30, 2013 at 10:59
As part of a tactical shift away from exposures sensitive to duration, the pair have bumped up their allocation to floating rate notes and credit default swaps.
'If we get a rise in rates it is important there is a form of tail risk hedge within the portfolio that allows the fund not to be held hostage to interest rate volatility,' Mawby said.
'Non-interest rate sensitive products provide a degree of immunisation to a sell-off in government yields while giving us the flexibility to allocate to the asset classes which offer the best risk-adjusted returns,' Mawby continued, adding that with stimulus becoming increasingly ineffectual, the margin for error within fixed rate products appears to be shrinking by the day.
By adding significantly to floating rate notes and credit default swaps, the GLG Strategic Bond fund managers will be able to maintain an attractive yield, while sheilding their fund from much of the cyclical volatility associated with standard fixed interest rate products.
The managers are also keeping a close eye on broader liquidity concerns and believe staying on the 'right side of trends' is key.
They explained: 'Very simplistically, this means having the discipline to use a rallying market to reduce risk and hence having the flexibility to be able to add risk when the return side of the equation is skewed in the fund’s favour.
'Avoiding being caught too long at the end of a rally is absolutely crucial right now, particularly in something like European peripheral debt and financials.'
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