Investec Asset Management, a U.K. fund manager with $8.5 billion in fixed-income assets under management, has lengthened duration on its portfolios. Geoff Lunt, a London-based fund manager, says, "It's been our view for a long time that the global political situation is going to get worse, and that is indeed what has been the case over the past week. The consensus is that [U.K.] interest rates are likely going to be cut, and obviously bonds will have a premium."
To this end, Investec bought '07 gilts, longer-dated money market instruments and one-year money market CODs--rotating roughly 10% of the portfolio in the move. The portfolios are now at a duration of 1.2 years, which is about 40% longer than the various benchmark indices the firm uses. Lunt says he intends to stay long for the time being.
Currently, five-year gilts are yielding 4.03%, and a drift downward in yields will not automatically trigger profit taking. "It's not the way we're looking at things at the moment; bonds remain attractive until we see a change in political situations and improving economies. We will remain with this position. Having said that, we will sell before they reach 3.5%," says Lunt.
