The market reaction to the coronavirus outbreak hasn't just caused equity markets to plummet. Fixed-income securities have also been hit, with many corporate bonds suffering sharp price drops as investors flee to safer assets. But Jim Leaviss, chief investment officer of public fixed income at M&G Investments, and manager of M&G Global Macro Bond (GB00B78PH601), dramatically reduced this fund's credit risk at the start of the year. So over the three months to 31 March, far from falling, this fund rose 7 per cent.
Although Mr Leaviss – like everyone else – could not have anticipated the market mayhem that the coronavirus outbreak would cause, coming into 2020 he believed that the market was overly bearish on government bonds and that corporate bonds had become too expensive.
“Corporate bonds looked their most expensive, in terms of spread of yield over government bonds, since 2007,” explains Mr Leaviss. “So I took the duration of the fund up and credit risk down dramatically.” Duration is a measure of a bond’s price sensitivity to a change in interest rates.