Following June’s EU referendum, the team held 2% in gilts across its Managed range, risk-based I-IV, as a tactical overlay on the expectation of a Bank of England base rate cut.
The central bank eventually acted in August, at which point 10-year gilt yields fell to just 0.5%.
By the end of October MyFolio had completely sold out of government bonds, excluding absolute return bond funds and inflation-linked holdings.
“2016 has been a year of surprises and at one stage 40% of the world’s bond markets where in negative territory, where you were actually paying governments to look after your money,” said SLI’s head of fund of funds, Bambos Hambi.
“In the UK, 10-year bond yields got down to 0.5%, whereas when we launched MyFolio six years ago, they were trading between 3-4%.
“What we’ve done gradually is take all of our government bonds out of our strategic long-term allocation – we have none for the first time. We reduced it from 2012, we took more out last year where only our Risk 1 fund had a strategic allocation to government bonds. In October, we sold out completely.”
He added: “We believe this is a multi-year story. Bond yields are abnormally low, even at today’s 1.4% for UK 10-year bond yields. However, we are prepared to tactically allocate over a 12-month view, as we did in June when it played out in three months.”
