Wednesday 15 June 2016 by Opinion

Global fund managers sell shares and buy bonds

Germany’s 10 year government bonds have joined Japan and Switzerland in the growing league of government bonds paying negative yields


Aside from the ongoing concerns about the global economic growth and the poor growth prospects for Europe specifically, recent volatility has come from the increasing prospects of Great Britain leaving the EU aka “Brexit”. The pollsters and bookies have shifted the odds of Britain leaving, with some polls actually forecasting an exit, but the bookies (the only ones putting their money at risk with their predictions) are still saying Britain will stay, just.

A shift in global fund managers’ allocations is what caused the big drop in German yields over the last few days.  According to a monthly survey of some of the world’s largest fund managers, they have shifted heavily out of equities and into bonds in the past month, a massive 7% switch on average.  They also have more in cash than any time since 2001, even higher than post GFC 2009; and deeply short Euro and Pound positions.

Sovereign bonds continue to offer very little for long term investors, but the increasing amount of risk aversion also shows the downside risk for cash deposit rates and for equities.  Higher yielding assets such as corporate bonds, real estate and infrastructure will become more and more popular as this risk aversion continues and the realisation that the world economy will be slower for longer sets in.  Investors wanting to set a higher yielding portfolio and de risk their long term investments need to consider the risk of waiting too long to make this switch.