Hickmore looks to crossover indices in SWIP Strategic Bond

Luke Hickmore, the manager of the £77m SWIP Strategic Bond fund, has upped exposure to high yield and investment grade cross-over indices in a short-term bid to protect the portfolio against unknown risks in the market.

In reaction to recent volatility, Hickmore has cut investments in cash bonds in favour of the crossover indices.

“It is not that we think anything is going to blow up, but in this environment it is difficult to pinpoint where the next problem is coming from,” he said. “We reduced our exposure to individual names substantially since the beginning of August and instead of buying them back through the drops we have been taking risk through the cross-over indices.”

Hickmore now holds 10% in the Markit iTraxx Crossover Index, a credit default swap index compiled of 40 equally-weighted high yield names, and has made a similar move with his investment grade bond positions, increasing exposure to the European Main Index from 0% to 6%.

Hickmore added during stressful periods correlations between both high yield and investment grade bonds and their corresponding crossover indices tends to be stronger, prompting the move.

However, he stressed the move will be short term and plans to unwind the index exposure back into individual stocks over time.

Hickmore added the likelihood of a double dip is high, but he said it was important to acknowledge that it will not be as severe as the recession of 2008.

“The environment is different and how companies react is significantly different. Most companies in high yield and investment grade sectors are boosting their balance sheets in preparation,” he said.

The SWIP manager, whose fund has returned 4.9% over one year against a 5% sector average, according to Morningstar, has also upped his duration exposure significantly.