Snowden bought French banks ahead of the rally

Stephen Snowden has upped risk on the Kames Investment Grade Bond fund by "aggressively" increasing exposure to banks and topping up high yield on the view the bottom of the market has already been reached.

The manager, who began working on Kames Capital fixed income range in July, had been "very underweight" financials since the summer but started adding exposure in early October after "questioning his position".

"I spoke at a conference a few weeks ago and the feedback from the delegates was that all the managers, irrespective of asset class and including me, were bearish, which is usually a sign that the market is ripe for a bounce."

At the start of the month Snowden moderated his underweight position by removing all protection and adding some RBS and insurance paper from the likes of Aviva, L&G and ING.

Ahead of the eurozone summit this week, the manager also realised sentiment was so weak within the markets that anything the politicians delivered would result in a move upwards.

"The summit on Wednesday was the final piece in the jigsaw. The view in the market was the leaders are not going to come up with any solutions. Expectations were so low that anything they came up with would be a catalyst for a change in market sentiment. We had to move prior to the crowd."

At the beginning of the week he made the controversial move of adding French banks to the portfolio. He bought bullet lower tier two (LT2) debt in Crédit Agricole and senior paper in Société Générale, totalling 1.5% of the portfolio.

"The sovereign crisis has not been resolved but a combination of market technicals, sentiment and positioning meant an acute rally was possible - and we are seeing that now."

He also added UK financials such as RBS and Nationwide and Dutch bank ABN Amro.

"I am still nervous on tier one debt as any bank that cannot raise capital by its own means will need assistance. I did not compromise the fund by buying Spanish and Italian debt as even though they have rallied the hardest, their problems remain."

Although he is pleased his positions have paid off so far this week he said the rally is unlikely to be sustained for longer than three months.

"There has been very little new issuance for four months, cash has built up in funds and there is probably a desire to spend some of that cash prior to year-end reporting so the rally does have material legs in it."