Barings' Cole slashes equity weighting by 15%

Barings' Andrew Cole has slashed the equity weighting on his £28.1m Multi Asset fund by 15% in favour of government bonds as his team becomes increasingly risk averse.

In fact, the portfolio, as well as Cole's £3.4bn institutional fund, has more government bond than equity exposure as the director of asset allocation forecasts markets will fall further on concerns surrounding the eurozone sovereign debt crisis and debates over the US debt ceiling.

"We have already lived with a pretty volatile market for the past couple of months but I see us trading sideways or downwards. We are yet to find the bottom of the trading range as there is continued uncertainty about the pace of economic growth."

Cole has cut equities, particularly global multi-national holdings, from 43% in April to 27.5%.

Government bonds from Australia, the UK and the US have been purchased and amount to 29% of the portfolio. When emerging market government bonds are included the total exposure is pushed to 34%.

"Economic data has continued to surprise negatively and will eventually feed through to earnings expectations," he said.

Cole added it has been difficult to find cheap assets and many are "pretty ugly", including UK gilts, but said these should benefit from the Bank of England's continued loose monetary policy.

Equity exposure is now skewed towards emerging markets as opposed to Western markets.

"Previously we had more in global multinationals, which we held as an alternative to emerging markets where we thought tightening monetary policy would be a headwind. This worked as multinationals did outperform, but we think this trade is coming to an end.

"Inflation will peak in China in the second half of the year and the central bank will take its foot off the brakes, giving markets a boost."

Cole has also been adding to gold again after cutting exposure at the end of last year.

"Throughout 2010 gold went up and down with equities so we reduced in Q4 as it no longer offset equity risk. We have been buying this back of late as, for a sterling investor, the gold price has been making new highs and performing differently to equities. This is attractive from a portfolio construction point of view."