Skandia Investment Group and OPM Fund Management have clashed over whether strategic bonds should have a high exposure to equities.
Under the Investment Management Association’s definition, strategic bonds are allowed a 20% exposure outside of sterling fixed-interest securities.
Adam Smears, head of investment research at SIG, who runs the £142m Skandia Strategic Bond fund, says 20% is too high. He says: “Equity has significantly more volatility than fixed income. Around 20% allocation to the higher volatility asset class means it will dominate the returns of that portfolio. To me, this type of fund is more like a multi-asset fund than a bond fund.”
Smears says a 10% exposure to equities sounds more sensible.
The Skandia Strategic Bond fund has a 9.8% weighting in the £6.3 billion M&G Optimal Income fund, which can hold up to 10% in equities.
But Tony Yousefian, chief investment officer at OPM Fund Management, says the flexibility to hold a 20% weighting in equities is essential to strategic bond funds.
Yousefian, who runs the £38.4m EFA OPM Fixed Interest fund, has a 9.5% exposure to equities through a 3.5% position in structured products and a 6% position in the £553m Artemis High Income fund, which can hold up to 20% in equities. He says: “Strategic bonds should be flexible to invest in any asset class within sensible limits.”
Mike Deverell, investment manager at Equilibrium Asset Management, says: “I do not like it when strategic bond managers invest in equities as the funds may take on more risk than investors expect.”