Henderson New Star’s James Gledhill has initiated a short position on gilts to protect against a possible spike in UK government bond yields.
Gledhill, manager of New Star’s £573m Fixed Interest and £235.7m High Yield Bond funds, says while the short position across both funds is currently small, it is likely to grow over time as the team becomes increasingly concerned about duration risk.
The move echoes the position held by colleagues John Pattullo and Jenna Barnard, who implemented a short on gilts in the pair’s Henderson Strategic Bond and Preference & Bond funds during the summer of 2009.
“While my funds are a little less aggressive on asset allocation calls than the Henderson Strategic Bond fund, January was the first time we have felt sufficiently strongly enough to implement the short overlay in Fixed Interest and High Yield Bond,” Gledhill says.
“There are two negatives in the market. One is the huge amount of government bonds that need to be issued verses the end of quantitative easing.
“But the other thing that has been keeping government bonds down is the low interest rates. Last year, the chances of rate increases were incredibly unlikely so it was probably too soon to play this game.”
Gledhill says the short removes about half a year duration on both funds.
“While it is not a large position, it is indicative of how we are feeling right now. We started in January and increased a little in February and will gradually build it up over the next few months.”
