Aviva Investors’ James Vokins has swung his portfolio to a “neutral” position, complaining that “experimental” decisions from central banks have led to a lack of clarity in markets.
The manager of the group’s Strategic Bond fund said the outcome of monetary policies enacted by the European Central Bank (ECB), the Federal Reserve and the Bank of England is too uncertain to predict.
Mr Vokins normally takes a view on asset allocation in the fund by choosing to be overweight or underweight a part of the fixed income market but, given what he feels is major uncertainty, he has chosen to remain neutral.
The £235.5m fund is currently split equally between investment grade, high yield and government bonds.
“Everything feels experimental at the moment,” he said. “I don’t think the ECB even really knows what to expect from its decisions.”
The ECB announced a further interest rate cut earlier this month – effectively charging commercial banks to park cash at the institution – and pledged to purchase hundred of billions of euros’ worth of asset-backed securities.
“Elsewhere, markets are waiting for interest rates to rise and to figure out at what pace they will rise,” Mr Vokins said.
“It is too difficult to make an asset allocation call.”
Markets are closely watching the Bank of England and the Fed for signs that either of them will raise interest rates.
The Bank of England’s Monetary Policy Committee remains split on whether to raise the base interest rate, according to minutes from its latest meeting, which saw a seven-to-two vote in favour of holding rates at their record low level of 0.5 per cent.
Meanwhile, Mr Vokins said some strategic bond managers had become complacent about risk as they had continued to buy high yield debt.
However, he does not predict much movement in his portfolio in the coming months as he is expecting there to be a market correction.
“Currently I hold areas of credit that are less affected by interest rates,” he said. “I am buying solid credits like telecom companies and utilities.”
The Strategic Bond fund, which he co-manages with Chris Higham, has returned 31.3 per cent in the past year, compared to the IMA Sterling Strategic Bond sector, which has returned 23.2 per cent, according to the fund’s latest factsheet.
Mr Vokins – who also co-manages Aviva’s £140.5m Investors Distribution fund, which invests 60 per cent in bonds and 40 per cent in equities – says that most retail investors are favouring strategic bond fund strategies.
“Bonds have done well in spite of the prediction of a sell-off. Investors are favouring a strategy that invests across the spectrum,” he said.
Mr Vokins has a particular interest in bank credit. “In the past five years there has been increasing regulatory measures upon banks and so they are less risky. This has been good for their bonds, because they look more like utilities,” he said.
The Distribution fund, which he co-manages with Chris Murphy, has returned 7.5 per cent in a year, compared to the IMA Mixed Investment 20-60% Shares sector, which has returned 6.8 per cent, according to the fund’s latest factsheet.
