Mr Cowley, who runs the group’s £929m Global Strategic Bond fund, told delegates at the Morningstar Investment Conference that investors should avoid government bonds and brace themselves for the effects of central banks unwinding their monetary policies.
Last week the Bank of England said the UK economy was now on a better footing after the growth forecast was revised up to 1.2 per cent in 2013. Governor Mervyn King said he expected the economy to return to its pre-crisis size in the second quarter of 2014.
The 10-year gilt yield had risen to 1.93 per cent last week – up from 1.8 per cent the previous week. As yields move inversely to prices, gilt sellers will have to accept decreasing prices if yields continue to rise.
“Government bonds were the way to hide your money from the banking system but that time has gone,” said Mr Cowley.
“Very long-dated government bonds are supposed to be safe but there is going to be equity-type losses fairly soon,” he added.
The manager said asset allocation models were “pushing us into the riskiest areas of the market” and suggested that safe places were either cash or funds that can make money in a range of circumstances.
While Mr Cowley said that “overall the market is seeking inflation protection”, he cautioned investors not to feel safe in inflation-linked bonds.
“They will go down just like any other bonds, they will just not go down by as much,” he said.
The manager was sceptical of the recent monetary easing policies of central banks and was shorting Japanese government bonds, as he believed the nation had shown “no evidence” that it was able to achieve its stated goal of consistently targeting 2 per cent inflation and weakening the yen.
He was similarly unimpressed with the £375bn quantitative easing programme in the UK, questioning how the Bank could exit its asset purchase programme without upsetting the balance of the gilt market.
“How can you signal you are no longer the final buyer in the market without some disruption?” he said.
Also speaking at the conference was Chris Rice, head of Pan-European equities at Cazenove Capital and manager of the £933.6m European fund. He said investors would be rewarded for not taking refuge in areas of the market they perceived to be “safe”.
