M&G's Woolnough cuts exposure to interest rate risk

M&G's Richard Woolnough has reduced his exposure to interest rate risk in his Optimal Income fund on the back of concerns about a possible excess in supply of government bonds.

He believes gilt yields are more likely to rise than fall but not as a result of the market's fear of the return of inflation. Instead, he thinks the sheer volume of expected UK gilt issuance will exceed demand for gilts, driving down prices and pushing up yields. The M&G Optimal Income fund's duration - a measure of its exposure to the risk of interest rate changes-has dropped to as little as three years from a broadly neutral position of 4.7 years three months ago. Duration was reduced on the fund by selling 10-year UK and 5-year German government bond futures. Woolnough comments: "...