Thesis sells gilts over volatility fears

Thesis Asset Management has been reducing its clients’ fixed-income exposure, looking to find lower-risk returns amid the heightened volatility.

The discretionary manager sold out of gilts last year, moving into corporate and strategic bond funds, but Michael Lally, director of investment management at Thesis, said he had further trimmed his exposure.

He said: “Recently we have been reducing further the fixed-interest exposure in our models and we have been switching that fixed-interest exposure into commercial property.

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“This is something we have done several times if there is a big gap between the yields on prime property and gilts, and this time it seemed a no-brainer when prime real estate is yielding 4.5 to 5 per cent.”

Mr Lally said he was not buying into commercial property to generate big returns, but because he was facing difficulties in balancing risk in his portfolios given the falls across the board in asset classes.

He said he had mainly been buying into the L&G UK Property Trust, run by Michael Barrie and Matt Jarvis, but that the firm’s weighting in the fund was now quite high, so he was looking to diversify into the Swip Property Trust managed by Gerry Ferguson.

He is only invested in open-ended funds because he has had “liquidity problems in both investment trusts and real estate investment trusts (Reits)”.

The avoidance of investment trusts has led Mr Lally to shift his exposure in the Polar Capital Technology Trust into the open-ended version, because of liquidity concerns.

He said: “We could be putting in three or four million each time and we need to know we can buy and sell it easily.”

As well as establishing a position in commercial property, Mr Lally said he had also been putting money into structured products, floating-rate notes and listed infrastructure funds to diversify risk.

In addition, Mr Lally said he had been selling out of large popular high yield bond funds from the likes of M&G and F&C Investments, and instead buying into the Kames High Yield Bond fund, primarily because it favours the US market above the European market.

However, the manager said he was sticking with the investments in gold that have hurt clients’ portfolios so far this year.

Having sold out in 2011, the Thesis team had bought back into gold in 2012 and was hit hard as the gold price fell sharply, temporarily hitting $1,200 per ounce last month.

“Gold has been oversold and there could be more of a bear squeeze but we are quite happy to run with it for a while.”