Citywire AA-rated Lucio Soso has aggressively cut sovereign debt exposure in his global macro fund to reflect his core scenario of slow growth and unilateral monetary policy for the foreseeable future.
Speaking to Citywire Selector, Soso said he reduced gross long-term government bond exposure from 118% at the end of December 2015 to 68% in the Bellevue F (Lux) BB Global Macro fund at the end of February.
This largely comprises exposure to US treasuries and German bunds, while also including several short positions on fixed income as well.
‘We reduced our US treasury exposure from 100% to 55% and upped our short exposure to five-year German bunds to about 29% in recent trading. It is expensive to be short for too long, so this is more of a short-term response to a rising rates environment,’ he said.
The bulk of exposure is in the seven- to 10-year maturity range, Soso said, while he stressed the significant reduction does not signal overall pessimism about fixed income exposure.
‘We are in a scenario of low yields and accommodative monetary policy, which we are responding to with these moves. Despite this, we still think government bonds have a very important role to play in stabilising a portfolio. There is an element of negative correlation to risk assets.’
Soso is also eyeing opportunities in the emerging world and following events in Brazil closely. ‘The currency has devalued quite a bit and there is a lot of public talk but this is a country which has known crisis before and the corporations have come through that.
‘We are in a scenario where a lot of these companies are being treated the same and so strong companies are yielding 8-10% in their euro- or US dollar-denominated debt, which could be attractive. There could be windows of opportunities here over the next three months.’
Elsewhere, Soso has increased equities from 25% to 31% of exposure. This is despite retaining a ‘relatively conservative’ portfolio, which is seen as a way of riding the sustained equity rebound without adding undue risk.
The Bellevue F (Lux) BB Global Macro fund returned 20.2% in euro terms over the three years to the end of February 2016. The average manager in the Alt Ucits – Global Macro sector returned 1.4% over the same timeframe.