Mike Riddell has sold out of his 7% position in Italian government debt on the back of concerns of a potential peripheral eurozone sell-off, as the Italian election looms in February.
The manager of the £82 million M&G International Sovereign Bond fund, who has held five and seven-year Italian government debt since July 2012, has sold out after seeing the yield on his holdings drop from around 6-7% at purchase to 2.7%.
The imminent Italian election will likely come with further political noise, according to Riddell, along with a possible general risk sell-off if eurozone troubles combine with the build-up to the US debt ceiling decision.
Having sold out of Italian bonds, Riddell has bought seven-year and nine-year Swedish government bonds instead, as he finds the country attractive in terms of its fiscal situation.
The manager favours the currency, as the Swedish current account surplus is only at 7%.
He says Sweden is also in a rate-cutting cycle, while inflation is -0.1% year-on-year, meaning Sweden is one of the few investment grade sovereigns with a positive real yield.
The likelihood of further rate cuts has been boosted by economic data being weak along with the eurozone, he adds.
Over three years, the fund has delivered 22.49% versus the Citigroup WGBI Total Return index’s 11.61%.