City Financial fund manager Mark Harris is adding risk into the multi-asset funds he has taken over following City’s acquisition of Eden Financial’s asset management arm.
Harris joined City from Eden alongside a number of colleagues after the deal completed in October.
Last week, City announced Harris has taken over the £34m City Financial MultiManager Growth, £13m City Financial MultiManager Income, £47m City Financial Diversified and £15m City Financial Dynamic multi-asset funds.
Harris says the portfolios were defensively positioned, with low weightings in equities and large positions in investment grade credit.
He is buying exposure to mortgage-backed securities across the funds.
He says: “Rather than just chasing equities higher, we have been adding to a number of positions in the alternatives space, like vehicles that offer access to mortgage-backed securities including investment trusts.
“Banks have been divesting of these assets at cheap prices as they get their balance sheet in shape for Basel III. It is an unloved asset class that has been overlooked.”
Harris adds that a switch from a defensively positioned portfolio straight into equities would make volatility shoot up and so he sees mortgage-backed securities as an “in-between asset class”, ahead of a correction in the equity markets.
Hargreaves Lansdown investment manager Adrian Lowcock says: “Mortgage-backed securities are no longer the risky asset class they once were, with underlying investments having to fall significantly for investors’ money to be at risk.
“They have performed well as investors sought out good income yielding assets. It is a reasonable place to park money if you think equity markets are too expensive and likely to fall.”