During his first year co-managing Liontrust's suite of fixed income funds, head of investment strategy for global fixed income Phil Milburn said the team's punchiest call has been to triple its Strategic Bond fund's exposure to high yield assets during the market sell-off in Q4 in 2018, and then to slash its weighting by two-thirds just a few months later.
Now, he describes the Liontrust Strategic Bond fund as adopting a more cautious approach than many of its peers; the £228m mandate currently has a 9.1% allocation to single B or BB-rated bonds, or so-called 'junk bonds', and has a 57.7% weighting to bonds that are rated single A and above.
According to Milburn, who manages Liontrust's fixed income funds alongside David Roberts and Donald Philips, the portfolio also has "significantly less interest rate risk duration" than most of its peers, with an average overall duration of between 2.5 and three years.
"Typically, we run with an average of 40% to 45% in investment grade assets, but this allocation is slightly higher because we have gradually been de-risking throughout this year," he explained.
He said this is largely due to valuation risk, but also indicated now is a prudent time to lower the market sensitivity of the funds and to "prioritise alpha positions".
One of the ways the team has been doing this, according to Milburn, is through the use of 'curve steepeners' and 'curve flatteners' - strategies that use derivatives to boost the fund's returns through either a rising or falling yield curve environment.
"We believe we are in a relatively normal cycle; it has just been flatter and drawn out for longer due to central bank policy," the manager said.
"A huge amount of money has artificially lifted asset prices, but it is still just an elongated cycle. Meanwhile, wage inflation is a big risk; it is a feedback loop that leads to general inflation.
"There is also continued political risk with US President Donald Trump and trade wars - once he has dealt with China, there will be sabre-rattling about Europe.
"Then, in Europe, it looks as though we might be getting a less dovish ECB [European Central Bank] president taking over from Mario Draghi.
"And, when the US Federal Reserve does cut rates, I expect them to need to start raising them again as fears from trade wars start to fade and reflation becomes the order of the day.
"Global growth isn't that bad. And given the world I have just outlined, bond prices are absolutely crazy."