Smith & Williamson's Thomas Wells is favouring US duration in the Global Inflation Linked Bond fund as he described the region as being in a "sweet spot".
Speaking to Investment Week, the manager of the £130m fund since 2017 pointed to economic data such as employment figures and inflation itself for holding US Treasury positions.
He said: "The US has been our favourite market for the past six months for two reasons.
"We felt the market was over-anticipating hikes from the Federal Reserve whilst economic data wasn't as strong as the market expected, the 'dot plots' started to creep down and average hourly earnings started to creep higher, which is a good indicator of higher inflation.
"We want exposure to duration in the US market, plus its inflation regime. The US is in a sweet spot at the moment."
Smith & Williamson hires fund sales head from JPMAM
He added a 10-year US Treasury currently offers a real yield (after the effects of inflation) of 0.3%; by comparison the real yield on the same maturity bond in the UK is currently -2.5%, offering investors a "huge pick-up" by diversifying out of UK.
Elsewhere, Wells is also overweight Germany and Spain, and has been since December 2018.
"In January, it looked likely that the European Central Bank (ECB) would be unlikely to hike rates before mid-2020."
Risks
Amid a flurry of commentators warning the bond bull market is set to come to an end, Wells has taken action to protect the fund.
"If we get a resolution to Brexit and sterling starts to appreciate, the UK linkers market will fall quite aggressively. We are trying to keep the fund super liquid and super low risk. Within the UK exposure we hold several corporate bonds which offer an attractive spread.
However, he is not convinced this resolution is coming.
"The Fed will effectively pause rates next year and will look at having an average target for inflation, possibly over a cycle, meaning it can also afford to run the economy a bit hot.
"This will prevent bond markets going into a bear market - the macro backdrop is not supportive of rate hikes. We will probably trade sideways for a few years but not enter a bear market."
Smith & Williamson hires fund sales head from JPMAM
He also added while Brexit uncertainty is clouding the UK market, it is also offering a "rich" opportunity in terms of currency exposure.
"You can hedge the currency of several countries and pick up yield on the swap; this adds to the yield to maturity on the Fund.
"Sterling is cheap at the moment as a consequence of Brexit. If we didn't hedge we would end up with a currency portfolio driven by currency markets - rather than a fixed income portfolio - which is something we don't want," he said.
Over the past year to 31 May, the Global Inflation Linked Bond fund has returned 3.89% compared to the IA Global Bonds sector median return of 4.08%, according to Morningstar.
However, since launch May in 2017, the Fund is in line with the IA sector median.
