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Quilter increases fixed income exposure after bond volatility

Quilter increases fixed income exposure after bond volatility

Quilter has increased its allocation to fixed income within its MPS as a result of the “extreme” government bond sell-off so far this year.

The group’s wealth select MPS had previously been underweight in traditional fixed income in favour of alternatives, as well as having a higher cash position.

However, wealth select's portfolio manager, Stuart Clark, has added to the Aviva Global Sovereign Bond fund in the managed active, managed blend and responsible active portfolios.

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Clark said while he is not expecting an “imminent pivot” in policy by the Federal Reserve, the team has re-balanced the portfolios to take advantage of the diversification offered by the current higher yields.

“I think there are a few more risks in the gilt market than there are in treasuries,” he added.

Global government bonds have seen yields jump this year, ending a four-decade bull run, as a combination of inflation, rising interest rates and central banks’ unwinding of quantitative easing programmes have chilled market appetite.

Though the trend has happened across developed economies, the UK in particular has suffered dramatic yield rises, after a now-reneged “mini” Budget announced a raft of unfunded tax cuts without an accompanying plan to pay for them.

Quilter’s responsible blend portfolios have seen an increase in exposure to the HSBC Global Government Bond Index fund.

Profits have been re-distributed across the equity and credit funds after a strong performance in the portfolios’ alternative holdings, including the Trium ESG Emissions Impact fund, the Quilter Investors Absolute Return Bond fund and the Quilter Investors Global Equity Absolute Return fund.

No changes have been made to the sustainable active portfolios as they already have a higher allocation to global government bonds.

Clark said economic growth is now being challenged as a result of stickier inflation and an incoming global cost of living crisis.

“As a result, while we don’t expect a sharp reversal in interest rates, we do think central banks will need to be innovative and adaptable with some form of support or easing," he said.

“The diversification benefits of fixed income should begin to shine again after what has been an incredibly difficult year for the asset class.”

sally.hickey@ft.com