Architas has increased exposure to high yield and financial bonds across its multi-asset active fund range as it seeks to take advantage of certain oversold asset classes.
Nathan Sweeney, co-manager of the fund range, says the extreme sell-off at the start of the year saw overreaction by markets.
He says: “As always investors have a tendency to overreact and to extrapolate a trend into the future.
“Indeed some market players are currently throwing in the towel by moving out of their equity investments entirely.
“There is a view emerging that the price of oil is going to zero and the US is on the brink of recession. As always this is the time to take a step back and assess the situation without the noise.”
Sweeney says the high yield sector faces clear headwinds given the global growth outlook and issues in the energy sector, but adds corporate fundamentals and valuations remain attractive.
He points to the improved position of many banks, given harder stress testing since the financial crisis, higher capital reserve ratios and over the worst swathe of regulatory fines.
He says: “One fund we have added to is the Pimco Capital Securities fund, which is an actively managed global portfolio that invests primarily in subordinated debt instruments issued by banks, insurance companies, and other specialty finance companies.
“The fund has no benchmark as it aims to invest in the best combination of low quality securities of low risk firms and high quality securities from higher risk firms. Pimco has a well-resourced team of financial bonds specialists that understand the opportunity set and regulation that is driving this asset class.”
He also cites Union Bancaire Privée’s Ubam Global High Yield fund as a way to access higher yielding bonds.
Sweeney says: “Given that yields are close to 10 per cent you are being paid for the potential risk of an increase in defaults which are unlikely to rise significantly unless we go into recession.”