Schroders multi-manager Andrew Yeadon has pared back exposure to higher risk assets across his three portfolios, believing the global recovery will be more stunted than previously anticipated.
Yeadon reduced exposure to equities as well as corporate and high yield bonds during May, while he also closed out a 5% short position in gilts.
As the investor exodus from risk assets intensified during the month, Yeadon initiated a 5% long position in US Treasuries.
The manager also built up cash in his Cautious Managed product, from 6% at end April to 15.4% a month later.
Yeadon says the Schroders team altered its previous positive stance due to the deteriorating economic environment during the month.
"To our minds, the outlook has become rather less promising than our base case a couple of months ago," the manager says.
"The southern European bond markets have all but seized up, liquidity in the credit markets has diminished, and banks have been showing a degree of reluctance to lend to each other.
"As a consequence of the government debt crisis, a number of European countries, including the UK, are now being forced to accelerate fiscal retrenchment. We now believe that the recovery will be more stunted than we had previously expected, and that the risk of a ‘double dip' should not be dismissed."
While the team has recently cut exposure to risk assets, Yeadon says the managers remain neutral.
"We are not inclined to take either an aggressively positive stance, or to be very defensive at this time. This reflects our judgement that the investment debate is finely balanced," he adds.
"On the one hand, we recognise the factors that may provide support to equities and corporate bonds: the ongoing, albeit slowing, global recovery of both GDP and corporate profits, expectations that interest rates will stay low, and undemanding company valuations.
"However, this has to be set against an understanding that both the recovery and investor confidence are fragile, and that there is a risk of continued tension in the global fixed income and interbank lending markets.
"Overall, we expect markets to remain volatile and range bound, and we would not anticipate another decisive break in either direction over the summer months."
