Invesco and Rathbones Cut Gilts on UK Exposure to Politics, Oil
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Author of the article:You can save this article by registering for freehere. Orsign-inif you have an account. 1o4a[c78s]f1izbr7ms4g111_media_dl_2. pngMorningstar(Bloomberg) — Fund managers including Invesco Ltd. , Ninety One UK Ltd. , Rathbones Asset Management Ltd. and W1M Group Ltd. have soured on UK government debt this year as worries about inflation and political instability prompt them to look elsewhere. Subscribe now to read the latest news in your city and across Canada. Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others. Daily content from Financial Times, the world's leading global business publication. Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account. National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on. Daily puzzles, including the New York Times Crossword. 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Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountorIn a period when multi-asset funds increased their overall allocation to bonds, the share of gilts among fixed-income assets shrank from 25% to 15% between December and June, Morningstar data show. Initially encouraged by the prospect of interest-rate cuts from the Bank of England, fund managers said they increasingly turned instead to the government debt of Germany and Japan, or high-yielding notes from Australia, New Zealand and Canada. The overall volume of UK government debt held in multi-asset funds is comparatively small at £13 billion ($17. 3 billion) — or just over a quarter the amount managed by dedicated UK bond funds. But the decision to trim holdings underscores the concerns investors have about Britain’s bond market, where borrowing costs are the highest of major developed nations. Get the latest headlines, breaking news and columns. By signing up you consent to receive the above newsletter from Postmedia Network Inc. A welcome email is on its way. If you don't see it, please check your junk folder. The next issue of Top Stories will soon be in your inbox. We encountered an issue signing you up. Please try againInvestors were rattled by the political turbulence around local elections in May that led to the departure of Prime Minister Keir Starmer and the installation of former Greater Manchester Mayor Andy Burnham this month. Meanwhile, soaring energy prices sparked by the US-Iran war fueled bets on higher interest rates to tackle any fresh uptick in inflation. Matthew Parkinson, who manages about £1. 9 billion at W1M Group, flipped his stance on gilts, citing “a lower conviction in the outlook for UK inflation and a greater appreciation of domestic political risk. ”The £883 million Multi-Asset Growth Fund, which he helps manage, cut its allocation to UK government bonds from 6. 65% in December to 4. 5% by May. David Coombs, head of multi-asset investments at Rathbones Asset Management, said he sold longer-dated gilts across a £9. 8 billion portfolio of multi-asset funds because of worries that Starmer’s replacement could turn out to be less fiscally responsible. ‘Uncertain Territory’Coombs said he was already dimming on gilts as far back as February, when Labour lost a former safe seat in a by election to the Green Party. That view hardened after the party’s defeat in local elections in May. “From that day, it was clear to us that Starmer was most likely to be challenged,” he said. “At that stage, we were into uncertain territory, which markets obviously don’t like. ”Multi-asset funds that invest between 40% and 60% in equities, cut their share of UK bonds by 0. 84 percentage points between December and June, according to Morningstar. That figure, which included both government and corporate bonds, was the largest reduction for countries covered by Morningstar. German and Japanese debt was popular instead, as well as Australian, Canadian and New Zealand government bonds, which money managers said offered higher yields with less volatility. After taking profits from his gilt holdings, John Stopford, head of multi-asset income at Ninety One, said he invested in a mix of short-dated Australian government bonds and state government bonds. He also favors New Zealand government bonds, because the market has priced in rate hikes there. “There’s a lot more meat on the bone,” he said. Ninety One’s £842 million Diversified Income fund had 11. 6% of its assets invested in UK government bonds at the end of May, down from 13. 3% in December. According to W1M’s Parkinson, Canadian government bonds offer higher yields than UK gilts even when hedged against currency moves. That’s despite “Canada’s stronger fiscal position and lower near-term political uncertainty,” he said. Still, there are signs UK yields may be reaching levels that offer appropriate compensation for the risks. After gilt yields surged in the latest burst of fighting between the US and Iran, Max Kettner, chief multi-asset strategist at HSBC, said he saw the front-end repricing “as a potential entry point. ”And some wonder if Burnham’s decision to pick former Defense Minister John Healey for Chancellor of the Exchequer over candidates seen as as more left-leaning, could bring gains for bonds if a period of political and fiscal stability ensues. “Could it be a time when gilts have a little bit of a run?” John Bilton from JP Morgan Asset Management said in a Bloomberg TV interview on July 17. Join the ConversationThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. Read more aboutcookies here. By continuing to use our site, you agree to ourTerms of UseandPrivacy Policy.