Hermes' Lundie: Why the traditional barbell strategy of combining lower and higher risk assets no longer works for bond funds

Challenging backdrop

Fraser Lundie, co-head of Hermes Credit and lead portfolio manager on the Hermes Multi Strategy Credit fund, explains how he is using low duration and a global approach to preserve capital in today's 'difficult' fixed income universe.

How difficult is it to achieve a sensible level of income today given that many developed market government bonds are yielding close to zero? It is increasingly very difficult as we seem to be in an environment of rising correlations and falling yields, which means investors are compelled to seek higher yields by going down in credit quality. To some extent, that is okay because in low-end investment grade and even high-end high yield assets we do not actually require significant amounts of growth for that part of the market to perform. This is because companies in those areas are stro...