“Just half a month ago we got the conviction that Greece is going to default and is not going to stay in the eurozone,” he says.
Delaunay, however, chose not to decrease his exposure to European equities, which stands at typically between 10% and 20% (depending on the portfolio), in response.
“Instead we have hedged all our exposure by selling futures on the Eurostoxx 50. We also have quite some exposure to US dollar (equities), the Norwegian krone, through high yield bonds, and sterling, as we expect the euro to tumble because of what’s happening in Greece.”
European government bonds, especially the peripheral ones, will also be affected negatively by a Grexit, Delaunay believes. “But we don’t have any exposure to this asset class. We only own corporate bonds, mainly high yield,” he says.
However, not everyone has been decreasing his exposure to European equity exposure, though Jaap Bouma, a senior portfolio manager for the Dutch wealth manager Optimix, admits that he regrets not having done so.
“Our decision not to sell is hurting us now, as European equities comprise almost 20% of our total portfolio, but we are not reversing our call to stay put. Markets could go down 5% more, but it’s extremely difficult to time when to step back in again. I wonder how all these people who reduced their exposure to European equities are going to do that,” he says.
Bouma believed the area which would be affected most by an increase of Grexit rumours would not be European equities, but peripheral government bonds.
“So we sold our long exposure to Italian and Spanish government bonds, though we still have short-duration Spanish bonds, and have reduced the duration of our bond portfolio from 5.2 to 3,” he says.
“We now have a core of safe short-duration government bonds complemented with emerging market debt and US high yield. I believe that makes a lot of sense in this environment, as the upside on long-duration government bonds is limited anyway.”
