Causer and Read add to government bonds

Invesco Perpetual managers Paul Causer and Paul Read have trimmed high yield and credit exposure in favour of government bonds, including Spanish government debt, on their £3.2bn Monthly Income Plus fund.

The group has described the move as a "marginal rotation" on the back of weak performance in government bonds and the recent strength seen in high yield.

Overall, government bond exposure on the fund has increased 2.8% to 4.9% since the beginning of the year, while the managers have cut high yield debt to 3.3%.

Lewis Aubrey-Johnson, product director on the fixed income team, said the government bond exposure includes UK gilts, German bunds and Spanish government debt, the latter being just under 1%.

"We have bought some shorter dated Spanish government bonds, which are offering an attractive spread over equivalent maturity bund yields.

"The fund is always going to predominantly invest in high yield and credit but has the flexibility to manage risk. We are in an environment of weakening government bond markets where core government bond yields have been rising due to inflationary concerns and peripheral government spreads have been pushed wider due to the general fears there.

"However, yields in high yield and subordinated bank bonds have been declining due to the strength there."

Causer and Read, who manage the fixed interest element of the fund while Neil Woodford manages the equity portion, still support subordinated bank debt and have around 25% of the fund invested there.

Aubrey-Johnson said: "Subordinated bank debt benefits from balance sheet reform, risk reduction and a transformation of the regulation of the industry. On top of that there is the cyclical recovery, albeit modest, as well.

"Banks are being forced to raise capital to reduce their dependency on wholesale funding. All of this will lead to a more stable and less highly-geared sector."