Speaking at a breakfast briefing, the managers commented on the recent surge of interest in equity income funds, which some argue have drawn investors away from fixed income.
‘Fixed income has had a fantastic run, and high yield we shouldn’t forget is a smaller asset class. People dip in to it to get a bit of performance, there are a lot of tourists,’ Logan said.
‘High yield is never going to be the most dominant asset class… I’m not saying tourists are exclusive to high yield but the amount of dynamic asset allocation is enormous. People aren't really embracing equities at the moment.'
‘At this stage equities will probably win out,’ McKernan added, adding that few people had allocations solely to one kind of equity. ‘If you have money in fixed income, high yield still makes a lot of sense, rather than putting it all in to sovereigns and investment grade.’
The comments come a week after statistics from the Investment Management Association show that inflows to equity funds have outstripped bond fund for the first time in a year, as investor sentiment begins to lift.
Logan co-manages the recently-launched Swip European High Yield Bond fund, which has returned 5.98% over the last three months compared to 6.09% in the BofA Merrill Lynch Global High Yield All Europe Cur benchmark.
Logan pointed to positions in select retailers that have weathered the recession as a driver of performance in his fund, including mobile retailer Phones 4u which has been ‘very successful’ and carpet company DFS, which he sees as a ‘survivor’.
‘DFS is a very cash generative business,’ he said. ‘It’s a survivor, virtually all its competitors have gone bust in recent years and it has been buying its bonds back, has a lot of cash flow and it has been very good for us.’
McKernan, who co-manages the SWIP Corporate Bond Plus fund, has delivered 16.24% over the last year, compared to 15.91% in the BofA Merrill Lynch Sterling Corporate Bond TR benchmark.
He is overweight financials with a bias towards life companies, as he argues these have been unfairly tarred with the same brush as banks.
‘We still think there is a lot of value there. When you see them trading in the market you would sometimes think they are banks because they are tied together,’ he said, adding that many insurers had made huge strides in improving operational aspects of the business such as underwriting cash on balance sheets.
‘We prefer insurance as our main overweight but we think if spreads are going to push in further it will be the financial sector that pushes those on.’