M&G manager boosts bias to gilts
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The short-term future of the gilt market might be providing M&G’s Steven Andrew with the “greatest anxiety in my portfolio” but it has not stopped him adding to the fund’s position.
The manager of the £100m M&G Income Multi Asset fund decided to shift the fund’s 3% position in US Treasuries into the long end of the gilt market, upping overall exposure to 30-year debt to 9%.
Gilts have had a bad start to the year but offer a superior kind of security that euro leaders like Germany surrendered with the adoption of the single currency, the manager suggests. (article continues below)
“We need to distinguish between a genuine sovereign market and a credit market,” says Andrew. “[Investors] did not realise that Europe lacked a sovereign bond market but … the very nature of a sovereign debt market is the right to issue debt in a currency over which you have true sovereignty.
“Germany is marked by the market not because it’s a sovereign but because it has good credit and so the minute it begins to become a bad credit, it will be marked like France or Italy or Portugal. Gilts, on the other hand, are genuinely risk free.”
Gilts comprise a relatively large percentage of the portfolio’s fixed income exposure. The fund holds a basket of developing government bonds including South Africa, New Zealand, Malaysia, Indonesia, Australia, Mexico and Columbia but with no more than 3% in any individual holding.
“The most recent thing I’ve done on the bond side is to add to South Africa and Mexico,” says Andrew, adding that they are well behaved, underlying economies that have restored themselves to a good deal of better fiscal balance than America or Britain.
Even more diversified is the portfolio’s exposure to corporate bonds as the 20% position is evenly divided between over 20 holdings with an average credit rating of about A-.
The remainder of the portfolio is given over to equities, which is approaching the fund’s maximum allocation.
With a 49% exposure, Andrew describes himself as being “as enthusiastic about equities as I am likely to get” in this environment.
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