Neil Birrell
Premier Miton’s Chief Investment Officer and manager of the Diversified fund range
For information purposes only. The views and opinions expressed here are those of the author at the time of writing and can change; they may not represent the views of Premier Miton and should not be taken as statements of fact, nor should they be relied upon for making investment decisions.
Current exposure to bonds
Across the range of Premier Miton Diversified growth, income and sustainable growth funds, we have been increasing the exposure to bonds over the last 12 months. This has been a gradual process and we have reached a level that has not been reached before in any of the funds, including the 10 years that the Premier Miton Diversified Growth Fund has been going.
The bonds used are generally the same across the 4 growth funds, just different weightings, whilst the income fund has a particular need for income, so there are differences there, and the sustainable growth fund has ESG criteria applied to it and alignment with sustainable growth themes, bringing differences as well.
However, overall, there are common features to the bond exposure across the range. The bond portfolios are higher quality, investment grade and have relatively low sensitivity to interest rate movements. In the main these are corporate bonds, although there is a small exposure to short dated US Treasury bonds in each fund.
The lowest risk funds have the highest bond weightings, which reduces as the risk of the fund increases.
The impact of Credit Suisse
With the exception of the Premier Miton Diversified Sustainable Growth Fund, there is a very small holding of a Credit Suisse bond (not an Additional Tier 1 or AT1 bond) across the range. This has been volatile over the very short term, but as the dust settles, and at the time of writing, it is back to where it was immediately prior to the collapse of the bank.
We increased the bond exposure at the time of the UK mini-budget last autumn. Given the volatile market conditions and our desire to act quickly, we took the unusual step of investing in a fund, the Premier Miton Strategic Monthly Income Bond Fund, rather than investing in bonds directly, which we wrote about at the time. The overall investment strategy of this fund is very similar to the strategy applied to each of the Diversified funds’ bond portfolios and managed by the same investment team.
However, the Premier Miton Strategic Monthly Income Bond Fund does have wider exposure to AT1 or contingent capital, which is where all the Credit Suisse related issues have been. This totals c.18%, so on a look though basis the impact on the Diversified funds is very limited. Moreover, the investment team view this as an opportunity to buy these specialist bonds.
To answer the question posed in the title
No; we still see bonds as attractive and we believe the volatility caused by the Credit Suisse takeover in a specialist area of the bond market has provided a buying opportunity.
