While consensus suggests that the FTSE would welcome a remain vote, but tank on Brexit, fixed income markets are much harder to predict. For Coombs, the gilt market looks “binary” if the UK leaves the EU.
“It could really go either way and depends what the Bank of England does,” he says.
“If the BoE does an emergency rate cut to provide liquidity then you could see gilt yields come in even further. On the other hand, if the BoE looks to raise rates because sterling could be off 10%, then you could see gilt yields rising. Holding cash and being very liquid seems sensible.”
Bambos Hambi, head of fund of funds at Standard Life Investments, has also been taking risk off the table, preferring to add to index-linked gilts as well as high-yield bonds through funds from the likes of Nomura, Threadneedle, Putnam and Pimco.
European equities is an overweight for SLI despite the post-Brexit threat to the eurozone, and this is where bargains could be had. Monetary easing is an important factor, though Hambi points to other improvements that “have only just started”.
He explains: “We’ve noticed bank lending starting again, and the consumer is spending again though still from very low levels. In the US, company profit margins have been at record highs, whereas in Europe they are at record lows, starting to increase marginally. We are also seeing better corporate profits in Europe.”
