Bond investors' "desperation" for yield can lead to many funds taking too much risk at the wrong price, Invesco Perpetual's Paul Read has warned.
Speaking at the Morningstar Investor Conference, the head of Invesco Perpetual's $40bn fixed income department and manager of 14 funds questioned the current risk managers were having to take in return for yield.
Read (pictured) said: "It is important for us as managers not to be drawn into taking too much risk at the wrong prices. We have had some fantastic opportunities to buy some amazingly cheap securities in fixed income. By and large those are gone now."
He said the most recent hunt for income by bond investors had caused some interesting moves in markets, including the convergence of yields of cash-rich Apple and debt-ridden Spain, while he pointed out Irish government debt may soon yield less than US treasuries.
The manager's fears over yields has led him and co-manager Paul Causer to invest elsewhere.
He said some large and mega cap equities looked more attractive than bonds now.
"Blue chip yields are better than bonds. In our funds, where we have allocations to equities we are maintaining a high level of exposure to high quality equity income stocks that act almost like a bond."
The funds are also running a lot of liquidity, he added, amid fears of a rush for the exit: "The door to get out of these markets is getting smaller and smaller and investors have to be very careful about the managing of liquidity.
"We have huge amounts of liquidity in our portfolios right now - a lot of short-term paper, a lot of cash which is a drag on performance, but there is some 'Barbelling' going on."
The duo's £5.5bn Invesco Corporate Bond fund has seen returns of 20.7% compared to a sector average of 18.4% in the three years to 12 May 2014, according to FE.
