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M&G Episode Balanced moves from US to South Africa

Juan Nevado and Tony Finding have added exposure to South African bonds and currency in their £327.1m M&G Episode Balanced fund after scaling back US holdings.

Nevado and Finding reduced US high yield credit exposure in July and used the proceeds to initiate a 4 per cent weighting in South African two-year government bonds. The move has taken the fund’s high yield exposure down to 4 per cent.

“Credit has been rallying quite aggressively for some time, and although the managers feel that high yield is still cheaply or fairly priced, they see more attractive opportunities elsewhere – both in terms of valuations and diversification properties,” the fund’s latest update says.

“South African bonds have become significantly more attractively priced, in line with several other emerging market bonds and currencies, under US policy tightening speculation and concerns over Chinese growth weighing on commodity price-sensitive assets.”

The managers also have cut their US dollar weighting and started around 4 per cent exposure to the South African rand in the belief that concerns over US tightening and Chinese growth are “somewhat overstated”. The exposure to the US dollar now stands at 13.8 per cent.

Hargreaves Lansdown investment analyst Richard Troue says: “There has been somewhat of a sell-off in emerging market debt so arguably now could be a better entry point than a few months ago – but overall we question whether investors are getting a high enough yield for the risk they are taking.”

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