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| Gregor MacIntosh |
Edinburgh-based Standard Life Investments is looking to add to a barbell strategy in European government bonds on the view that the European Central Bank will adopt a tightening bias, and is also considering its first ex-benchmark move into gilts in more than two years.
Gregor MacIntosh, investment director and manager of £2 billion in European government debt, is moving to a 5% overweight position from 3.5% in both one- to three-year bonds and over-25-year bonds. On the flip side, he is reducing his position in the five- to 17-year portion of the curve to 10% underweight. He is neutral in the remaining maturities.
MacIntosh will be adding to short-dated Irish bonds, on the basis of good fiscal dynamics. "Irish tax receipts are very strong relative to other European economies," said MacIntosh, pointing out that aside from Spain and the Scandinavian countries, most other economies are in deficit. At the long end of the curve, he is investing in Italian government debt. "Italian bonds are higher yielding and offer good compensation for the additional risk," commented the manager. He is steering clear of new issues, saying only that what is coming to market "is not that compelling."
"The belly of the curve performed well when interest rates were being cut, but now there is less encouragement for the five- to 10-years," said MacIntosh. He expects interest rates to remain stable through the third quarter, but looks for a quarter point tightening to 2 1/2% toward the end of 2004 or beginning of 2005.
Standard Life is likely to add U.K. gilts to its European bond portfolios in the near future. "The 10-year spread of U.K. gilts to German bunds has already widened from 25 bps in July of last year to 90 bps today--if it widens another 10 to 15 bps we think that would be an attractive place to get in," said MacIntosh. The portfolio is benchmarked against the Merrill Lynch EMU Direct Government Index, and does not currently hold any non-European Monetary Union debt.
The fund has been reducing its short duration stance in the last few weeks, from a half-year short to a quarter-year short the benchmark's four years.
