Strong outperformance due to limited demand leads Finlayson to cash in holdings
Aegon’s £270m Strategic Bond fund has taken profits on its entire 6% holding in Swedish government bonds following the country’s fall back into recession.
Fixed income investment manager Colin Finlayson says the team sold the fund’s holding last week as the demand for limited supply resulted in an outperformance “too good to ignore”.
Sweden’s fourth quarter GDP contracted 0.6%, after a revised decline of 0.1% in the third quarter. This figure was much weaker than anticipated, says Finlayson, given the recent strength of survey indicators and its labour market.
He says the news caused Swedish government bonds to rise as investors favoured the ‘safer’ option over corporate bonds. In addition, with the recent statements from the Riksbank being more positive in tone, the GDP report came as a surprise to the market and Swedish government bonds have outperformed their European counterparts as a result.
Finlayson says the Citigroup Government Bond Index shows the Swedish market is up 2.3% from last year, beating the UK market by 2% and a rise of 1.6% in Germany.
Finlayson says some of the earnings will stay in cash but most will be recycled into more core European countries such as Germany.
“The Swedish government bonds traded very well year to date and were particularly exaggerated over the last few trading sessions,” Finlayson says.
“We sold down the exposure on Wednesday as the relative outperformance was so strong.
“Having already performed well, the weakness on the GDP side gave it enough of a kick to cause us to cash in and try to find better opportunities elsewhere. We felt it had done its job.”
