EdenTree's Katimbo-Mugwanya: Covid-19 spike not priced into bonds

Markets reluctant to price in second wave

Fixed income investors need to begin adapting their definition of risk, according to EdenTree's David Katimbo-Mugwanya, who said the potential for a second coronavirus wave and subsequent falls in credit quality has made for a "challenging" environment to invest for capital preservation while maintaining income.

As such, the co-manager of the EdenTree Higher Income, Amity Bond and Amity Short-Dated Bond funds, said the portfolios' durations are "as low as they have ever been", and he has increased weightings to defensive sectors such as utilities and consumer staples. "In the big March sell-off, we took an opportunistic stance as spreads widened considerably - we used that to add to AA-rated credits such as Nestle, which, for two-year paper, saw its yield become as high as 2%," he said. "We have definitely been taking opportunities in the high-quality space, rather than the lower quality hold...