Viviani has two main reasons for having an overweight in government bonds. First, it’s basically a risk-off move. “We cut our exposure to emerging markets after the first China drawdown last summer, and after that we continued to cut exposure to emerging markets and commodities because of the collapse of the oil price,” he said. “We are completely out of high yield too.”
The second reason for his constructive attitude on government bonds is his expectation that the ECB’s monetary policy actions will provide a floor for the asset class. “We expect ECB QE will continue to strengthen government bonds at least for this year,” he says.
But when would be the time to move to higher-yielding asset classes?
“We are ready to change our allocation when we see positive sentiment about equities and high yield,” says Viviani. But for now he remains cautoius. “We are waiting for a well-defined trend, so we will not be the first ones entering into a bull market trend.”
“But we are ready to increase equity exposure, in developed markets to begin with and after that in emerging markets. However, our main goal is to protect the capital of our investments.”