Greetham ups bonds as growth turns stale

Greetham ups bonds as growth turns stale
Trevor Greetham: “Our long-term view remains positive on equities”

Royal London Asset Management’s Trevor Greetham has been shifting money into fixed income and ditching equities amid signs of faltering global growth, though he remains prepared to buy stockmarket exposure on market dips.

Mr Greetham, who runs the firm’s GMap fund range in his role as multi-asset head, said he had been boosting exposure to bond funds and lowering equity weightings for the past few months.

The manager said leading indicators showed global growth was likely to slow and inflation may have peaked, with such an environment typically proving supportive for bonds.

“The global dynamics are leading us to be less bearish on bonds,” Mr Greetham said. 

“For instance, the [Federal Reserve’s recent rate hike] might be the last rise for some time. We have come from a period of positive growth indicators but this year has seen that unravelling, while business confidence is coming off the boil.”

Mr Greetham pointed out that inflation, which had been stoked largely by a revival in the price of oil rather than sustained wage growth, was likely to have peaked and may fall from this point, which would also be positive for bonds.

The latest measure of CPI inflation in the UK saw it hit a new four-year high of 2.9 per cent in May. But some have tipped this to fall.

The GMap portfolios currently have an underweight position to fixed income of around 4 percentage points, but Mr Greetham said he was “on the side of buying rather than selling bonds”.

Meanwhile, the manager’s move to lower equity exposure has seen him reduce an average overweight of between 7 and 8 percentage points in 2016 by 3 percentage points this year.

He said the long-term path of the global economy and markets supported higher exposure to shares in the long run.

Mr Greetham said that, with inflation likely to fall, central bankers around the world could continue to provide support through loose monetary policy, which would be positive both for global growth and for equity markets.

He said he expected to find buying opportunities over the summer – generally viewed as a volatile period for markets – during which he will start adding again to his equity exposure.

“Our long-term view remains positive on equity markets,” he said. “Stocks beat bonds when the global economy is seeing above trend growth and unemployment rates are falling.”

Like a number of other managers, Mr Greetham has become more bullish on European equities this year, having raised his GMap funds’ exposure to the region from underweight to neutral following the election of Emmanuel Macron as French president.

He had previously been underweight due to the heavy prevalence of political risk within the region, but said such concerns were now less urgent.

“I am much more comfortable now when it comes to Europe,” he said. “[European] equities have pulled back a bit in the past month, compared with other regions, which has produced opportunities to add, and the macroeconomic indicators keep improving.”