Aviva Investors multi-asset manager Nick Samouilhan has significantly reduced his fixed income exposure due to the lack of attractive yield.
Samouilhan, who co-manages the Aviva Investors multi-asset range of funds with Peter Fitzgerald, has chosen to favour equities within the portfolio and is looking to avoid what he sees as an increasingly crowded trade in fixed income.
He says: “People are after yield and have plenty of cash and are now asking where the returns are.
“All of us are looking at these and seeing historical lows and there is not much outlook for further spread compression. It has become a crowded trade. There has been a huge shift into this sector of the market and we are worried it has gone too far.”
As a result, Samouilhan and his team have halved the portfolio’s exposure to corporate bonds and sold out of high yield completely.
The funds Samouilhan has being selling out of are the £85m Aviva Investors High Yield Bond fund and the €2.9bn JP Morgan Global Corporate Bond fund. He says the move has been made because of the funds’ underlying asset class exposure.
The only area of fixed income Samouilhan sees as potentially interesting is emerging market debt, which the funds went into during the ‘taper tantrum’ after May 2013.
But Samouilhan has a lower allocation to emerging market debt now at 5.89 per cent, and has yet to see an opportunity to add to this. He adds: “I would like to be increasing this but we have not been seeing stabilisation and valuations have shot up again. For instance, Iraqi debt offers quite good yield despite the troubles there.”
As a result of selling out of fixed income, the Aviva Investors Multi Asset II fund now has 12 per cent in cash. With this freed-up capital, Samouilhan is looking to increase exposure to absolute return strategies and property, with the latter attracting the fund manager due to the potential yield available.
“Some of this capital is going into property and we are going up a few per cent, toward the top end of what I am comfortable with,” he says. “Within the Multi Asset II fund this is now at 7 per cent. It should be boring but we are seeing a property-driven boom in prices and property is exciting for us. It gives us a decent yield and you have potential for capital growth here. We are looking at commercial property outside of London, so we do not get exposure to the housing bubble we hear about.”
The funds Samouilhan has been allocating to as part of this theme are the £1.6bn Aviva Investors Property trust and the €297m Aviva Investors European Property fund. The former is a UK-focused trust with 75.90 per cent invested in the domestic market, 40.80 per cent in retail property and 22.40 per cent in office property.
The latter is allowing Samouilhan to tap into a commercial growth story and has 28.70 per cent of its assets invested in industrial property and 25.40 per cent in retail property.
Samouilhan says he is content to remain overweight in equities, which are now 50 per cent of the Multi Asset II fund. As well as being invested in the US and UK, he sees potential upside for Europe due to the recent raft of policy measures from the European Central Bank.
About the Aviva Investors multi-asset fund range
Co-managed by Nick Samouilhan and Peter Fitzgerald, the Aviva Investors multi-asset range comprises five funds with each product having a different risk profile and as of 31 May had an AUM of £496m. True to their name, these funds can invest in a mixture of equities, bonds, cash, property and commodities, choosing either to do so via investing in other funds or directly into the securities. The IV and V funds were launched in 2010, the I and III funds were launched in 2012 and the II fund was launched in 2013.