Star fund manager Richard Woolnough has upped the equity exposure in his £15.2bn M&G Optimal Income fund to 4.1 per cent after 18 months.
Since January 2014 the bond-focused fund, which has an equity limit of 20 per cent, had around 1 per cent in equities as Woolnough dropped equity holdings from 11.4 per cent to 0.64 per cent at the start of 2015.
Among the new shares purchased in the fund are blue-chip companies such as Apple, Time Warner, Daimler and BMW as the manager aims at large and financially stable companies.
In an investor update, Woolnough says: “The stocks we have bought have attractive potential compared to their respective corporate bonds. Credit spreads have narrowed and government bonds have been falling for a long time.
“In individual cases, the shares are becoming more interesting parts of the capital structure of companies. The earning yield of these companies is significantly higher than the bond yield-to-maturity, providing adequate compensation for higher risk equity investments.”
The news comes as Woolnough’s fund has lost close to 40 per cent of its assets in a 12-month period, mostly from the Euro-hedged retail share class, according to Morningstar fund flows data.
The fund had €17.9bn (£15.18bn) in assets in June, compared to €29.6bn a year ago. Its assets peaked in March 2015 with €33.8bn net assets.
As of 31 July, the fund has returned 3.49 per cent in the past year, compared to 4.71 per cent of the UK Strategic Bond Sector.