The tactical asset allocation committee at Parmenion Investment Management has shifted to overweight government bonds having started 2022 underweight.
The committee said it “collectively came to the view that we have now moved into the mid-to-late slowdown phase of the business cycle”.
The discretionary investment manager, which boasts £9bn of investments under management, has been de-risking its portfolios over the course of the year, which has primarily been achieved by increasing government bond exposure, largely by adding to gilts and treasuries.
Jasper Thornton–Boelman (pictured), investment director at Parmenion, said: “As we’ve seen rates climb, bonds have become a more attractive asset class. Not only do they provide a higher yield, but they act as a credible hedge against risk-off events. Essentially, there is now more room for yields to compress, so greater scope for capital gains.”
Specifically, the Parmenion Tactical solutions started the year double underweight in conventional government bonds. The committee added that it remains cautious on index-linked bonds, however, given a negative outlook for real yields.
“While we are certainly late cycle, there are still good opportunities and pockets of value with equities. UK mid cap is a prime example, an area which has really suffered of late. We also see catalysts for strong performance within China and emerging markets over the medium term, given a more supportive policy backdrop and easing Covid restrictions, amongst other things. Ensuring we hold enough government bonds provides some offset to the risk of running these positions,” Thornton–Boelman said.
Further, a higher allocation to alternatives remains in place across models, which is intended to offer some resilience to continued inflation.
He added: “We have clearly seen that inflation can be more persistent than central banks expect, and if that trend continues, even higher yields will likely follow. That may be a challenging backdrop for bonds and equities – as we’ve seen this year –so holding assets such as infrastructure and property that are more comfortable in that type of environment, feels prudent.”
Parmenion was sold to European private equity firm Preservation Capital Partners in 2021 by Standard Life Aberdeen, now Abrdn. As the deal was finalised, a 30% stake was sold to Assetco, with PCP retaining 70%.
