M&G’s Leaviss adds credit risk on tapering over-reaction

Leaviss Jim M&G 480

M&G head of fixed income Jim Leaviss added credit risk to his fund at the end of June, after de-risking some parts of the portfolio earlier in the month. 

Leaviss took some risk out of the £850m M&G Global Macro Bond fund at the start of the month by selling remaining positions in a Mexican government bond, a US dollar-denominated Spanish government bond and emerging market corporate debt.

A fund update says: “Early in the month, Jim continued to de-risk the portfolio, a process he had started at the beginning of the year and had accelerated in the second quarter as he felt a correction could be due in riskier parts of the bond markets.”

Later in June, Leaviss added some credit risk and lenghtened duration after viewing the month’s sell-off in bond markets as an “overreaction” and made purchases within the US and UK government bonds.

In particular, Leaviss believes there was an overreaction to Federal Reserve chairman Ben Bernanke’s comments regarding the tapering of quantitative easing and the possibility of interest rates being increased. 

Credit risk was added through position in the Itraxx Crossover index to gain exposure to European high yield bonds. Leaviss also bought five-year gilts,10-year US treasuries and, to a much less extent, 30-year US treasuries, with additions to short-dated UK index-linked gilts.

As a result, the fund is now has 43.3 per cent in government bonds while its duration rose slightly 3.6 years, which remains above the fund’s neutral position of 5.5 years.