Citywire A-rated Bill Eigen has shifted his $3.4 billion JPM Income Opportunity fund to 50% cash due to a lack of opportunities and uncertainty caused by central bank policy shifts.

In a statement to our sister publication Citywire Selector, the JP Morgan Asset Management manager said his income fund's cash levels had fluctuated from a high of 67% in 2014 to 18% in 2016 given changing market risk profiles.

However, coming into 2018, Eigen said rich valuations and high correlations across sectors, combined with huge levels of interest rate risk, made it more prudent to return to a liquidity-heavy allocation.

‘Central banks globally are acknowledging the global economic strength and removing accommodation. This has profound implications for valuations, since indiscriminate central bank demand has had dramatic impact on bond prices, essentially disconnecting them from fundamentals,’ he said.

Eigen said the ability of the broker-dealer community to absorb shocks or volatility caused by the changes in central bank stances is now questionable.

‘This is another reason to have plenty of dry powder – 50% of the portfolio is in cash today – and to stand ready to be a liquidity provider. The era of artificially low rates and easy monetary policy is coming to an end. This will create volatility and great opportunities for fundamental investors with liquidity.’

The JPM Income Opportunity fund returned 2.4% in euro terms over the three years to the end of February 2018. This compares with a 1.5% sector average by the other funds in the Bond Strategies sector over the same timeframe.