Causer and Read: Holding banks has hit our performance

Invesco Perpetual's Paul Causer and Paul Read have admitted banking exposure has hurt the performance of their £334m Tactical Bond fund, but are sticking with the positions.

In a monthly update, the duo said banks - to which over 44% of the fund is exposed - and high yield bonds have hurt recent performance.

However, the managers believe "there are significant investment opportunities in both these areas, with attractive yields to be captured".

The Tactical Bond fund is the second-worst performing fund in the Strategic Bond sector over the past year, posting a loss of 6.7%. This compares to the sector average return of 2.6%.

The managers said data from Merrill Lynch showed sterling tier 1 subordinated bank debt returned -7.4% last month while European high yield returned -5.9% in sterling terms.

Despite the poor performance, Causer and Read said they will continue to back their banking positions.

"In financials, the combination of structural reform, the introduction of the Basel III guidelines and rising capital levels should be supportive of subordinated bank debt for many years and in our opinion aggregate yields on this type of debt offer real value, even in the context of recent high levels of volatility."

November's factsheet said banks accounted for 44.12% of the portfolio, up from 27.17% in July this year.

The managers have also deployed some of their cash weighting in the past month. In October the fund held 16.37% cash but this fell to 10.15% in November.

"The fund has maintained a relatively high weighting in cash to allow flexibility to invest in opportunities when they arise," said the pair.