According to manager Dickie Hodges, Legal & General’s dynamic bond trust presently contains around 25% in high yield.
He said the reason for keeping high yield was because he still wanted to retain the opportunity to lift hedges when people’s expectations on growth had been discounted.
“We still like high yield but have reduced our exposure and kept the names I like, hedging through indices to contain the level of volatility,” said Hodges.
Warning that liquidity in the market was “as bad as the dim, dark days of late 2008, early 2009”, Hodges believed the market could reach extremes where people were worried about another recession in the US. However, he said he personally believed Washington would do as much as possible to avoid a double dip.
“The last thing they want now is deflation,” he said.
Hodges said the market was not only coming to terms with the current volatility in the equity markets but also with the fact that growth was lower.
“We have lowered our estimates for US growth for the rest of the year and 2012,” he said. “We didn’t believe a third round of quantitative easing would be coming around but now we are not discounting it, given the extreme moves we have seen in the markets.”
