Thesis Asset Management has begun increasing fixed income allocations across its seven-strong range of portfolios as the firm’s investment committee shifts away from its bearish view on the asset class.
The firm has long been negative on bonds, holding weightings at the lower end of its long-term strategic asset allocation. However, investment manager James Nield said he had begun “dipping his toe” back into the asset class following the UK’s vote to leave the EU.
“We’re not rampant bulls [on fixed income] but one of the consequences of the referendum is that interest rate rises have been pushed back, so we could allocate,” he said.
Mr Nield said Thesis was still cautious on fixed income valuations – the primary reason for the previous low allocation – but said the addition made sense at a time when the team was also cutting back on equities.
Allocations have been increased via existing holdings such as the $715m (£548m) Muzinich Global Tactical Credit strategy run by Mike McEachern, Thomas Samson and Warren Hyland, and Jonathan Platt’s Royal London Corporate Bond fund.
These were funded by paring back cash the team had built up by selling equities throughout 2016. One of its balanced funds, obliged to hold between 35 and 65 per cent in equities, had just a 40 per cent allocation at the end of May.
“We’re now [holding equities] close to the minimum, which was a trajectory before the referendum,” Mr Nield said. “We have no reason to change our view. The [negative] response of markets to companies meeting expectations is a sign that equity markets are fully valued.”
Thesis had 6-12 per cent in cash across its range but has now scaled this back to 3-9 per cent post-referendum.
In keeping with some of his peers, Mr Nield said he had also increased infrastructure equity allocations in the past month, mainly at the expense of cash and property exposure. The trade has become common among fund buyers due to both a shift away from commercial property and expectations of fiscal stimulus.
Thesis’ infrastructure weighting has risen to 8 per cent from 5 per cent in its balanced portfolio.
Despite its UK property reassessment, Thesis has kept L&G UK Property across its range. The fund, which has made a negative fair value adjustment to its price, was one of few open-ended UK commercial property funds to remain open to transactions.
However, in the lower risk range of funds, the firm removed exposure to the Kames Property Income fund – another portfolio that has remained open for business.
The strategy is focused on buying secondary and tertiary assets and waiting for longer term value convergence. Mr Nield said this would now take longer to bear fruit given the decision to leave the EU.
“We had concerns about liquidity, which was part of the thinking, but also the trend of secondary and tertiary convergence. It certainly won’t accelerate [due to Brexit] so we will have to wait a long time for that,” he said.
On the remaining cash holdings, Mr Nield said the asset allocation committee had “earmarked” the capital for deployment.
“The committee has ideas and values for markets, so if these markets get hit with no fundamental change we can take advantage of that,” he said.