A lack of confidence in UK government policymaking is proving a concern for bond fund managers, according to a report by Evangelia Gkeka, senior manager research analyst fixed income at Morningstar. Despite soaring yields and a slight uptick in investor confidence since the Bank of England’s intervention in the gilt market, managers from Jupiter and JP Morgan Asset Management remain unpersuaded.
Ariel Bezalel, the manager of Jupiter Strategic Bond, attributed the decision not to increase the portfolio’s exposure to either gilts or corporate credit – despite the “attractive” yields on offer – to concerns over the credibility of UK government policy.
For their part, the Morningstar report noted, the team on the JP Morgan Global Bond Opportunities fund had been finding better opportunities overseas and so chose not to alter their 4% exposure to UK debt throughout the period. Once again, concerns over UK institutional credibility were said to have informed the decision, alongside the likely continuation of upward inflationary pressures.
Jim Leaviss, manager of the M&G Global Macro Bond fund, was one of the few to increase exposure to the asset class this month – though he added that, despite the Bank of England’s qualified success in taming yields, the £300bn of issuance now projected for next year was a “worry”.
Overall, the Morningstar report concluded managers had not adjusted their UK positioning “in material fashion”. “Although they largely agreed the sell-off created some attractive entry points, the overall uncertainty and conflicting signals between a central bank that is fighting inflation and a government that is trying to support growth by creating additional inflationary pressures, are likely to lead to elevated volatility, and this has curtailed conviction in UK assets,” said Gkeka.
“At the same time, diversified managers seem to believe that other regions offer a more stable investment framework at this juncture. In any case, the recent volatility in UK bond yields and sterling emphasised the importance of a flexible and nimble investment process, which allows a manager to cut risk when markets become volatile, while also having the ability to deploy capital after a dramatic market sell-off.”
