Snowden, co-manager of £462.1m Kames Investment Grade Bond and £71.5m Kames Investment Grade Global Bond funds, said a number of risk factors make it likely that another “buying opportunity” will emerge in 2013.
Credit spreads have enjoyed a near six-month rally and are still performing strongly, but the manager has started to bring the funds’ positioning round to a more defensive stance.
“I am certain that the short cycle risk-on/risk-off will reappear at some point next year, therefore we have been very recently reducing credit risk in the fund quite considerably,” he explained. “We haven’t an outright defensive yet as I think the market will push on strong until the year end.”
The manager cited ongoing tension in the Middle East, the looming US fiscal cliff and the likelihood that Spain will be “junked” as challenges that could spark a renewal of risk-off investor sentiment.
Snowden started adding credit risk to his portfolios in May this year on the back of falling asset prices.
He began adding risk more aggressively after the European Central Bank announced its outright monetary transactions programme, which he viewed as “a material sea change in attitude to the sovereign crisis in Europe”.
“Having been brave and doing the right thing by buying assets when they were cheap, we are now selling them into a very strong market,” he commented.
“I suspect we might be selling them too early but you can only sell these assets in strong markets and you can only buy them in weak markets. If want to actively asset allocate, you have to do it early.”
The Kames Investment Grade Bond Fund, which Snowden runs with Euan McNeil, is first quartile over one and two years and in the the second quartile over three and five years.
