Jon Mawby joined GLG in October from European Credit Management and runs the fund with Steve Roth, head of credit at GLG.
“One of our themes at the moment is allocating away from duration sensitive products and replacing them with securities like FRNs and CDSs which do not have a direct correlation with the interest rate cycle,” Mawby said.
“If we get a rise in rates, it is important there is a form of tail risk hedge within the portfolio that allows the fund not to be held hostage to interest rate volatility. Non-interest rate sensitive products provide a degree of immunisation to a sell off in government yields while giving us the flexibility to allocate to the asset classes which offer the best risk-adjusted returns.”
Currently the fund’s interest rate insensitive exposure is around 40% of NAV, a stance the team also held through the second half of 2012.
The liquidity concerns fixating bond markets at the moment is also playing a key role in asset allocation within the fund.
Right side of the trade
The fact liquidity has “fallen off a cliff” as banks have deleveraged “makes it essential to stay on the right side of trends,” Mawby explained.
“Very simplistically, that means having the discipline to use a rallying market to reduce risk and hence having the flexibility to be able to add risk when the return side of the equation is skewed in the fund’s favour.
“Avoiding being caught too long at the end of a rally is absolutely crucial right now.”
To implement this view the managers have reduced the fund’s peripheral Europe exposure to around 5% from 15% into the end of 2012.
And in terms of positioning across the wider universe, Mawby said the pair is trading very tactically, exiting positions quickly where they no longer see value.
“If something trades through fair value we have to be disciplined and take profits, getting too greedy puts the fund in a tactically weak position – something we seek to avoid.” he says.