One of these signals was a potential volatility increase. In August, the increased volatility offered the opportunity to close this position in profit. It also offered a new opportunity of an attractive entry point for a long credit position.
In keeping with the trend towards funds that make their own micro asset allocation calls, strategic bond funds have, like absolute return strategies, made great strides forward in terms of popularity in recent years.
Could these offer a smoother path through turbulent equity and fixed income markets – particularly a time of upheaval in central banking monetary policy?
Summers believes the strategic bond sector does a reasonable job of protecting capital in equity down markets, but to the extent that the sector is generally underweight duration, with a reasonable amount of credit used to generate returns.
The bears and the bulls
Again, though, strategies can vary greatly and the investor must do a fair amount of due diligence to know exactly how managers fair in both bull and bear markets.
“If you are short duration and stuffed full of high yield and emerging market debt in a strategic bond fund, then you are not going to do very well if equities fall off.
“So, I think the most important thing is to understand what the parameters of the fund are and what the manager’s views and philosophies are,” he explains.
“If you want them to offer you downside protection when equities are weak, then clearly you need a manager who is willing and able to position the fund appropriately for that circumstance.”
