David Jane, founder of TM Darwin, has warned multi-asset funds that invest heavily in strategic bonds may not offer investors sufficient diversification.
Jane, who runs the £11m Multi-asset fund, says strategic bond managers are investing in equity because it is cheaper than high-yield.
He says: “A lot of multi-asset funds are constructed of strategic bond funds and equity funds. Strategic bonds are showing a similar risk profile as equity funds as strategic bond managers are investing in high-yield and are buying equity, as it is cheaper than high yield.
“I am not sure you are offering a well-diversified portfolio as a multi-asset manager if you invest like this.”
Jane invests in foreign bonds, which give him currency diversification. His warning comes after Brian Dennehy, managing director of Dennehy Weller, told investors in September to avoid strategic bond funds with big high-yield bond exposure in a low-growth environment.
Gavin Haynes, managing director of Whitechurch Securities, says: “Look underneath strategic bond funds as there is a wide discrepancy between different funds in terms of remit and where they are investing.”