Editors' pick: Originally published June 30.
Given all the post Brexit volatility there is no better time to be in a long/short bond fund, said Jeff Hudson, portfolio manager for the Cedar Ridge Unconstrained Credit Fund (CRUMX).
"Given all the volatility in this environment and some of the liquidity constraints, we believe being long/short, and truly short, in credit is a good place to be right now," said Hudson, adding that the fund's ability to own various types of bonds and maturities offers him additional flexibility to increase the fund's total return.
The Cedar Ridge Unconstrained Credit Fund is up 4.8% thus far in 2016, according to Morningstar. The $60 million fund has returned 6.5% over the past 12 months, outpacing 92% of its rivals in Morningstar's long-short credit category. The trailing 12-month yield is 2.6%, according to Morningstar.
Hudson said Great Britain's decision to leave the European Union takes the Federal Reserve's planned interest rate increases off the table for the foreseeable future. And he said traders may have been taken off-guard by the post-Brexit pop in bond prices, suggesting more money to be made ahead.
"We believe that credit and bonds may become more important. That reversed after Brexit when people became much more equity focused," said Hudson.
Hudson said he is long muni bonds and expects them to do well based on their relative value, as well as overseas demand.
On the flip side, Hudson said he continues to be short Treasury bonds due to valuation. And he said he is short some consumer-based issues on the belief that the economy is not doing as well as it may outwardly seem.
Finally, Hudson remains worried about liquidity on bond desks following the cuts in staff on trading desks.
"There is no liquidity at the broker-dealer desks so the transition mechanism is much more direct than it ever was and people need to be aware of that," said Hudson.