The heavy-hitters of the corporate bond world continue to deny there are liquidity problems in their multi-billion pound funds; however, Hickmore says it is an issue that cannot be avoided. He cites Richard Woolnough and Ian Spreadbury’s relatively high weighting to cash and gilts as indicators the managers may be wary of the wider economic environment.
"Both of them are denying there’s a problem but instead are looking at it from the point of view of large redemptions, and yet both of them have close to 10 per cent in cash and gilts and I’m not sure why," he said.
"Both seem to have quite positive views on the market, so why would you be running with 10 per cent in cash and gilts?"
"If you have 10 per cent of your fund liquidated you could get it done, but it still wouldn’t be overnight. We are very, very careful and mindful of where liquidity is and what that means for investors who do want to liquidate."
"If there was a sea-change, from bonds in to equities say, in a meaningful sense, I think we would actually find out the extent of the problem and I think the bigger funds – you’d need to be wary of them."
Hickmore admits the same applies for his £3.8bn Scottish Widows Corporate Bond portfolio.
"We’re aware of the liquidity issues in the market as well and I wouldn’t say it’s not a problem," he continued.
"It’s something we think about and review monthly and look at and worry about. You also have to understand your client, and it’s sticky."
The manager currently holds between 4 and 5 per cent in cash and gilts to improve the liquidity in his fund.
"I’m running with that kind of number because I want to be OK with liquidity and OK on duration management. It’s good to have a little cash on hand for new issues, but much more than that would be an underweight in the asset class and I don’t want to be that," he said.
He adds that the current low-yielding environment will not only continue into next year, but will likely worsen as investors are forced further up the credit scale in search of yield.
"Investment grade bonds are OK value at best," he said. "The way to add value has got to be dipping into the best-quality high yield and then moving into the next band down and the next band after that."
"It’s the natural push that every investor is being forced to look at – you’re shifted out from gilts into investment grade, from investment grade from high yield, high yield to equity and emerging markets – that kind of push will continue all through next year."
Hickmore says getting 10 to 20 per cent returns from bonds in 2013 will be difficult.
Rather, he says, strategic top-performing bond funds would see returns in the high single-digits.
"It’s a tricky year coming up."
"I’d rather be in a strategic or absolute bond fund so you’ve got a manager that can be flexible," he added.
While Hickmore says fixed interest investors have to move up the risk scale in order to find yield, he plans to gradually de-risk his portfolios over the next year.
He commented: "We’re at near our riskiest stance for this year. There’s a lot of technical support in the market, but the thing we’re looking at more and more is where the revenues for the company are coming from."
"It’s going back to the knitting, it’s going back to what you do as a fund manager," he said.
"Do you really want to be worried about whether Greece is in or out of the euro or whether France and Germany are going to split off and form a northern currency league?"
"No. You want to be looking at companies and their relative values and ask yourself whether European companies look more attractive than American ones."
"Those are the kinds of questions, I hope, we will get back to next year."
The manager only started running Scottish Widows Corporate Bond in February of last year. Since then, it has delivered 21.04 per cent, marginally outperforming its sector average.
Performance of fund vs sector since Feb 2011
Source: FE Analytics
The fund requires a minimum investment of £1,000, has a total expense ratio of 1.12 per cent and is currently yielding 3.8 per cent.
Hickmore also heads up the SWIP Strategic Bond and Scottish Widows High Reserve portfolios.