Swip bond manager gloomy on bonds
Scottish Widows Investment Partnership (Swip) bond fund manager James Carver has said equity markets are “better long-term value” than bond markets due to extreme volatility and low yields.
Mr Carver, manager of the £77.4m Swip Absolute Return Bond fund, said: “The last two months are the first time in my entire career I’ve believed equity markets are better long-term value than the bond market.”
The remarks echo the views of Old Mutual Asset Managers’ head of fixed income Stewart Cowley, who has consistently stressed that he is bearish towards bonds in recent months in spite of the fact he is a bond fund manager.
The managers’ comments underscore the perceived risks in bond markets currently. Government bonds in particular have been bought heavily in the past year amid the worsening eurozone sovereign debt crisis.
Swip’s Mr Carver said the additional quantitative easing that is being rolled out by the Bank of England (BoE) “did not necessarily mean lower yields” in government bond markets.
He is shorting UK government bonds and German bunds, both of which have seen their yields dip to all-time lows in recent months as they are viewed as ‘safe haven’ alternatives to more troubled government bond markets.
“The volatility of longer dated bonds is so high that the risk-return [trade-off] just isn’t there,” said Mr Carver. “I can’t see investors continuing to buy these instruments at such low yields with volatility so high.”
The manager has increased his holdings in shorter dated bonds, to hedge against the longer-term risk of inflation and rate rises, and said there was “too much uncertainty and lack of confidence” about the future of Europe.
While he is “bearish” on most developed markets, the manager said he is “more positive” on peripheral Europe and has bought small amounts of Italian and Spanish debt maturing in two to three months.