Aberdeen Asset Management moves 'sizeable' chunk of assets from equities to government bonds

Published on Tuesday 13 April 2010 21:54

ABERDEEN Asset Management, which manages some £114 billion on behalf of investors, has moved a "sizeable" amount of money from equities into UK government bonds.

Although Mike Turner, AAM's Edinburgh-based head of strategy, said he was cautiously optimistic over the UK's credit rating and the value of the pound, he said the move was "as much about paring back our exposure to equities a little as anything else".

He stressed the fund manager still retained its overweight position in equities but that the 4 to 4.25 per cent yield on UK ten-year gilts was "not too unattractive".

"Our decision to buy gilts is because we think we'll get a worse performance in stocks," Turner said.

Although there are concerns over potential credit rating downgrades for the UK, Turner said he was "pretty sure we're getting most of the bad news priced in" and he dismissed talk that compared the UK's financial situation to that of Greece.

"In terms of the UK's budget deficit to GDP ratio then there is no doubt we have a problem, but Greece is starting from a point of 120 per cent outstanding debt to GDP and the UK has a credit rating of AAA compared with Greece's BBB."

Turner said that in the run-up to the election he expected more volatility in the gilt market. "But UK ten-year gilts are considerably higher than eurozone counterparts who have lower credit ratings," he said. Turner said it may be a "close run thing" as to whether the UK's credit rating is downgraded.

"The risk of that is not insignificant but my suspicion is that whatever happens in the election steps will be taken to rein back the deficit and there will be a much greater degree of clarity on a medium term plan for the economy," he said.

"No-one is being specific about what they plan to do if they are elected because no-one wants to lose any votes by being specific."

He also dismissed talk of a looming sterling crisis. "I wouldn't say that sterling might not be weak if we get a hung parliament but I don't see a crisis."

AAM's head of strategy also said he believed the impact on the equity market in the event of a hung parliament "would be fairly insignificant". "Whatever the outcome of the election, the progress of the economy in the short term at least is likely to be influenced by external events."

Last week, Glasgow-based Ignis Asset Management, which has about 67bn under management, said it had moved about 100 million of assets in its corporate bond fund into gilts and the "safest" corporate securities on concern the election may result in no single party having an overall majority.

Edinburgh-based wealth manager Turcan Connell has said it expects the pound to lose as much as 20-30 per cent against the dollar once investors turn their sights on the UK as the government sells a record amount of debt and jeopardises its triple-A credit rating.