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| Adam Walker |
Glasgow-based Britannic Asset Management is considering shifting money from U.K. into Japanese government bonds. On the credit side, the manager will stick with its overweight in triple-B rated credits through year-end, according to Adam Walker, investment manager jointly responsible for the firm's £7 billion in fixed interest under management. In govvies, the firm could shift money out of the U.K. and into Japan, which it currently underweights versus the J.P. Morgan Global Index. "We have an outright short on Japanese governments but are reviewing this as we get more bearish on sterling," said Walker, noting that gilts are starting to look expensive given the current market fundamentals. He expects the Bank of England to keep interest rates on hold until year-end with the possibility of another quarter point in the first quarter of next year, whereas the short end of the sterling curve indicates that rates have already peaked and is pricing in a rate cut.
Britannic is positioned in 10-years and shorter-dated longs in gilts, while it has a neutral curve position in yen. The duration of the benchmark in the U.K. is 7.4 years and in Japan is 5.5 years; Walker declined to specify how short he is in both regions, and the timing and magnitude of a possible change in weighting. He did indicate that Britannic could go neutral or slightly overweight Japan if the outlook for sterling deteriorates sufficiently.
In credit, Britannic will continue to overweight single-A and triple-B bonds relative to the iBoxx All Maturities Index. Walker noted this positioning on the credit curve is symptomatic of the firm's bullish outlook for credit fundamentals and global growth, as well as the expectation technicals will continue to favor credit.
"We don't expect there to be much corporate issuance between now and year-end, in addition to which structured credit buyers continue to drive demand for corporates to include in collateralized debt obligations," Walker said. On a sector basis, Britannic has overweights in telecommunication names including France Telecom, Deutsche Telekom and Telecom Italia, as well as tier-one banks, industrial services companies and asset-backed securities.
