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By Bradley Gerrard | Published May 21, 2012

Multi-asset managers keep clear of peripheral bonds

Global bond and multi-asset fund managers are continuing to shun peripheral European sovereign bonds and deploying tactical trades to play the unfolding eurozone crisis.

Patrick Armstrong, managing partner at Armstrong Investment Managers, said he had sold a 5 per cent position in Italian government debt at the end of February, shortly after the second long-term refinancing operation (LTRO) was launched in Europe.

“We bought the position in November and December and we sold it into the LTRO buying,” he said.

“The position started off at 4 per cent but went up to 5 per cent so we saw a 20 per cent gain in three months, which means the position paid off.”

Mr Armstrong said he would have to see a lot more stress in markets before buying peripheral debt again.

“If yields spike up significantly from here and we get indications that the European Central Bank would be a buyer of peripheral debt that might entice us,” he added.

Camilla Ritchie, who runs Seven Investment Management’s Unconstrained fund, has reduced the vehicle’s ‘eurozone crisis resolution’ theme – which was made up largely of Spanish and Italian sovereign debt – from 14 per cent to roughly 2 per cent.

“Although we think the long-term story – that the eurozone will survive – remains valid, perhaps without Greece, and that peripheral debt is a good place to be, at the moment all the problems which are in the spotlight mean we thought it would be better to get rid of those positions and get back in at lower levels,” she said.

Kevin Adams, co-manager of the £215.6m Henderson Overseas Bond fund, said he tactically bought Italian debt in late November when 10-year yields climbed above 7 per cent. However, he said he sold the holdings just weeks later.

“We saw the first LTRO drive yields lower and we used that as an opportunity to exit,” he said.

“Since then, we have decided to stay away.”

Mr Adams said the current higher yields would not be enough to entice him back.

“Until I can see something that looks like a credible plan for a large enough firewall I see little point in getting involved from a strategic view,” he said.

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