Rathbones's head of fixed income Bryn Jones has taken advantage of the current volatility to sell his investments in UK government bonds.
Mr Jones now has about 10 per cent of the capital in his £113m Rathbone Strategic Bond fund deployed in cash.
He said the recent turmoil in bond markets caused by the uncertain political climate in Italy prompted many investors to invest in safe haven assets such as UK government debt.
This pushed the price at which gilts were trading to a level where he considered it prudent to sell his holdings and take a profit.
He said the events in Italy were a "serious credit event" and investors would probably continue to reduce risk in their portfolios, so because of this he has kept the cash from the sale of his gilts.
Earlier this week markets were plunged into turmoil after Italy's president rejected Paolo Savona as finance minister of the nascent populist government on the basis he was an advocate of exiting the euro currency area, a policy not contained in the manifestos of the two populist parties - Five Star and the League - which nominated him.
Mr Savona's rejection led to the resignation of the designated prime minister and the nomination of a technocrat but markets feared he would lose a vote of confidence and a fresh election would be called, leading to greater success for Italy's two populist parties.
Mr Jones said this flight from risk was likely to be particularly negative for investors in emerging markets because these assets were at the riskier end of the bond market spectrum, so he expected those to see a sell-off.
He said events in Italy have had a more profound impact on the outlook for emerging market assets than fundamental economic information such as the relative strength of the US dollar because sentiment was a stronger driver of asset prices in emerging markets than in developed markets.
This is because emerging market economies have historically been more reliant on global trade and less on domestic consumption than developed market economies.
Mr Jones has less invested in emerging market bonds than does the market as a whole.
Paul Brain, head of fixed income at Newton, said that while long-term concerns about the prospects for the Eurozone amid political tensions are justified, but he said the sell off of Eurozone assets in recent days was overdone.
david.thorpe@ft.com
