The recent sell off in the bond market and growing liquidity issues have forced bond investors to use similar hedging techniques, undermining their effectiveness and causing concerns about how much downside protection funds really have.
Consensus trades, such as shorting duration or investing in core government bonds as a diversifier, have not paid off, managers said, with yields widening out.
The proliferation of such trades across some of the UK's leading bond funds is also causing concerns as it means many managers could be impacted if one such trade backfires.
Ian Winship (pictured), head of sterling bonds at BlackRock, said bond managers need to introduce more flexibility into their investment processes to prepare for the threat of increasing yields.
"Everyone uses the same hedges, such as buying and selling duration or crossover bonds, so they cease acting as a hedge," he said.
"We want more flexibility in our benchmarks and investment guidelines from clients and consultants so we can be more flexible in our investment process."
Winship has recently been reducing risk exposure in his Absolute Return Bond fund by cutting allocation to risky assets such as emerging market debt and high yield bonds.
Other bond managers, including Newton Investment Management's Paul Brain and Rathbones' Bryn Jones have also reduced EMD exposure in their funds ahead of the vast sell off in the asset class over the past few weeks.
EMD funds suffered redemptions of $2.6bn in the week ending June 19, according to data provider EPFR Global, and analysts at UniCredit noted the average four-week outflows are now the highest on record at $1.73bn.
Colin Finlayson, co-manager on the Kames Strategic Bond and Strategic Global Bond funds, said the trades used by bond managers as hedges in recent months have been "overpopulated".
Safety in derivatives?
One area strategic bond funds have also been investing heavily in recently is derivatives, such as credit default swaps (CDS). Finlayson said derivatives are helping reduce beta exposure.
Three year strategic review
Impact on markets
Has run Cautious Managed fund since 2011
What’s right – not what sells
Richards fires back at committee report