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Asset Allocator

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From the brink

Asset Allocator has been catching up with some of the DFMs we cover and we recently had a chat with Matthew Yeates of 7IM.

Yeates told us that after a period of having his fixed income allocations "as low as they could possibly be", he has started to materially increase his exposure.

He says the reason for the change of heart is that yields, particularly in the US corporate bond space, are now attractive.

That market is now offering 6 per cent, and Yeates felt that with yields like those, he "just had to have an allocation".

But he is staying strictly short duration with the bonds he has, as he believes longer-dated yields do not offer sufficient yield premium to justify the extra duration risk.

That caution is also reflected in his equity exposure, of which he told us: "If you were to rank our level of risk on a scale of one to 10 then we are only at a two or a three".

Yeates said the equity market rally in October felt like a classic bear market rally.

He said: "The areas of the equity market we like would include pharma, which has strong defensive characteristics, but we also are happy to sell options on some of the equity holdings we have."

Yeates's career trajectory has involved him becoming something of a specialist in the alternatives space, and that hasn’t changed with his recent asset allocation as he views the recent rises in interest rates as an opportunity to increase exposure to bank and financial bonds.

He says banks' financial durability was now tested very regularly, ensuring that they retain a high level of capital - particularly in the UK. And banks tend to benefit in this sort of climate because the capital they are required to keep for regulatory reasons generates a greater level of income as interest rates and bond yields rise, providing greater cash flows and capacity to repay the bondholders.

Yeates gets his exposure in this part of the market through the BlueBay Financial Capital fund and the Wisdom Tree AT1 ETF.

Neither of those funds are held by any other allocator on our database. 

The Premier Miton Financial Capital Securities fund is the most popular mandate of this type on our database, being owned by two allocators.

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