Posted inEquitiesFixed IncomeEurope

Asset managers expect government bond carnage

According to Expert Investor’s Fund Manager Survey for November, almost half of asset managers think global government bonds will lose more than 5% of their value in the next 12 months. The remainder expect returns between 5% and -5%.

The fund manager pessimism on bonds contrasts sharply with their expectations for equities, at least the ones listed in Europe. Sentiment for the asset class has remained at elevated levels throughout the year, despite the capricious behaviour of the continent’s stock markets. The fund manager expectations correspond neatly with the asset allocation intention of Europe’s fund buyers: they want to further decrease their exposure to government bonds, and have been voicing their intent to step up their allocation to European stocks for quite some time now.

 

The poll was conducted before Thursday’s famously disappointing ECB meeting, which resulted in government bonds and European equities plummeting in tandem. While government bonds seem on track to reach their ‘target return’ of a -5% return, equities behaved contrary to both fund manager and selection expectations, with the Euro Stoxx 50 shedding more than 4% of its value in the 24 hours after the ECB announcement.

However, the most important thing to note here is perhaps that the aftermath of the ECB meeting proved the negative correlation between bonds and equities, an assumption which forms the basis of many multi-asset portfolios, is now really something of the past…

Click here to see a full overview of the latest Fund Manager Sentiment for a range of asset classes.  

Part of the Bonhill Group.