SWIP’s Webb poised to double high yield exposure

Roger Webb, manager of the £81m SWIP Strategic Bond fund, is poised to take advantage of the recent sell-off in high yield amid signs of a solution to the European crisis.

The manager has taken a more defensive tack over the past year by raising cash to 8% and index-linked gilts to 20%, but is now set to add risk as market anxiety rises.

“The high yield market is pricing in extremely distressed levels,” said Webb.

“But we see a more constructive solution to the eurozone crisis than the markets are pricing in.”

Webb, who co-manages the fund with Luke Hickmore, is looking to take exposure to high yield up to 40%.

He has also slashed his financial exposure from 35% to 25% in recent months.

Webb’s high yield exposure now sits at 22%, but the manager has been gradually edging this higher and said a resolution to the problems in the eurozone would prompt him to nearly double this weighting.

“High yield has sold off aggressively and we are looking to raise this to around 40% in coming months,” said Webb.

“The 10% yield levels are compelling. Two or three months ago we would not have been compensated for the risks but we are now.”

The SWIP manager has also added 5% to investment grade credit, taking his position up to 28%.

“We do not see investment grade as cheap but it offers stability as a sector,” he added.

The managers have hiked cash levels in the fund recently to shelter from market volatility.

“We expect this volatility to continue but want to dip into opportunities as they arise,” he added.

Webb has also slashed the fund’s index-linked gilt exposure in recent months from 20% to 7%: “Inflation expectations have fallen, making index-linked gilts less attractive.

In addition an influx of issuance in the long end of the index linked sector has led markets to re-price these products,” he said.

“We could see gilt yields fall in an environment of risk aversion and we could see ten-year gilts fall as low as 2%,” Webb added.