Rathbones cuts gilt weighting in strategic bond fund
The Rathbone Strategic Bond fund has cut its gilt weighting after a range of indicators were “ringing bells” about the bonds being overbought.
Bryn Jones, the lead manager of the £32.1m portfolio, recently reduced his allocation to gilts to about 3%, down from about 8%, after a series of technical signals pointed to “serious overbuying” in the gilt market.
In particular, Elliott Wave Theory suggests gilt yields are approaching long-term historical lows that will be difficult to breach, he notes.
“We took off our exposure at around 1.63%, 1.64% [yield] in the 10-year gilt,” the manager adds.
“That’s not an aggressive position, we’re not going to carry that for a long time but will start adding back to gilts as yields rise.”
The manager invested some of the proceeds in Treasury bills but is holding the remainder in cash. This will be used to re-buy gilts when 10-year yields hit the 1.74% mark.
“I’m going to start drip-feeding some money back into the gilt market shortly,” Jones explains. “But we’re going to remain underweight gilts overall for a while.”
At the moment, Jones prefers asset-backed floating-rate debt or covered bond floaters.
He notes that some AAA-rated floating-rate covered bonds yield 2.7%, which is close to the return on a 30-year gilt but without the interest rate sensitivity.
In addition, the Rathbone Strategic Bond fund’s collective vehicles bucket - which typically comprises half of the portfolio - plays a similar theme.
Jones owns portfolios that are of low or negative duration, such as the Neuberger Berman Short Duration Bond and the Thames River Global Bond funds.
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