According to Standard & Poor’s Fund Services some UK fixed income fund managers are dipping into their cash reserves to buy back into the market and increase corporate credit risk.
“Widening credit spreads reflect the increased economic risks, although there is no consensus on whether Western economies are simply experiencing a mid-cycle blip or a serious downturn,” says S&P fund analyst Kate Hollis. “Current valuations are generally regarded as attractive longer-term buying opportunity as managers predicted continued sub-par growth rather than a double-dip recession.”
Recently fund managers have tended to hoard cash. Invesco Perpetual’s Paul Causer and Paul Read who run the Invesco Perpetual Fixed Interest Investment Series Tactical Bond Fund allowed the cash position rise to 30% earlier in the year.
The Fidelity Investment Funds – Strategic Bond Fund run by Ian Spreadbury held 12% in cash and 25% in government/supranatural bonds. Spreadbury thinks there are still risks that warrant this defensive position.
The Henderson Strategic Bond Fund currently has some 15% held in cash o the back of ‘…the lack of economic growth and Eurozone politics’ says Hollis.
Although most managers are still cautious ‘…some are tactically increasing corporate credit risk in the face of widening spreads and putting cash back to work’. Says S&P. Invesco for example has recently invested much of its 30% cash into Spanish, Italian and French risk.
S&P says that good-quality corporates, in both investment grade and high yield, are being seenj as potential buys for fund managers with higher levels of cash, which was ‘…being held in anticipation of further volatility in the short term because of eurozone debt problems’.