BNY Mellon Investments Switzerland GmbH

  • Real Return: why we’re still defensive

  • 11 September 2019

Positioned prudently with a defensive tilt, with the flexibility to take advantage of tactical opportunities as they emerge, the Real Return team discusses asset allocation amid the current volatile market backdrop.

Against an uncertain and distorted investment backdrop, Newton’s Real Return¹ team has been adjusting the strategy’s duration exposure while taking tactical advantage of equity moves. According to the managers, the strategy’s duration peaked in February at around five years at the overall portfolio level (which includes all fixed-income exposure: developed-market government bonds, high-yield corporate bonds and emerging-market debt).

Since then, they have been taking profits as bond yields gradually moved lower. “Our medium/long-term view of government bonds has not changed: we still think there is likely to be yield convergence between the US, Europe and Japan; however, on a tactical basis, we think government bonds became overbought, and, with the rally accelerating very sharply towards May, we were able to lock in some profits. Since the end of the last quarter, yields have taken another leg downwards and we have made further tactical adjustments to the portfolio to take advantage of this.”

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