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Fidelity’s Greetham cuts government bond allocation to minimum

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Fidelity head of tactical asset allocation Trevor Greetham

With the end of quantitative easing in sight, Fidelity head of tactical asset allocation Trevor Greetham has slashed his allocation to government bonds to the bare minimum across the group’s multi-asset range.

Greetham switched to an underweight position last October but further deepened this stance in August, ahead of the tapering of quantitative easing in the US.

He says: “We have been underweight government bonds in the multi-asset funds we manage for many months and this month we are at our maximum underweight.”

Greetham believe the gradual normalisation of US monetary policy is likely to set in motion the worst bond market returns in generations.

He adds: “The 10-year Treasury has already lost its holders 10 per cent since May when the Fed signalled a willingness to taper QE if growth remains strong. If previous episodes offer any guide we could be two-thirds of the way through the sell-off.

“If yields head back to the 2003-7 average of 4.5 per cent we may only be halfway through and a stop-go bear market could last for many months to come.”

A return to growth in developed markets has seen Greetham move his equity positions to large overweights in the US, the UK and Japan during the recent market weakness as he is confident with earnings growth set to improve stocks can weather a rise in bond yields.

Charles Stanley Direct head of investment research Ben Yearsley says: “Cutting his allocation prior to May was good timing.

“But overall I cannot see the attraction of government bonds right now, and I cannot see why anyone would buy them at their current levels.”

But Informed Choice managing director Martin Bamford says: “I think the extent of possible short term losses has been overstated. Gilts continue to play an important role in a well diversified portfolio, particularly as equity markets remain volatile.”


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