Greece divides bond fund managers on safe haven assets

Increasing talk of a Greek exit from the Eurozone is prompting fund managers to review which asset classes can be deemed safe and deliver returns.

Managers at several of BNY Mellon’s subsidiaries, including David Leduc of Standish Mellon Asset Management, Peter Bentley from Insight Investment, Alexis Renault of WestLB Mellon Asset Management and Paul Brain of Newton Investment Management met to assess risks of investment in Europe’s faltering currency union surged to new levels.

Leduc, chief investment officer of Standish Mellon Asset Management’s active fixed income division, has revised upwards his estimate on the probability of a Greek exit from the Eurozone this year to 75%. He said an exit is likely “in the near term, not now”, potentially within six months or less.

Alexis Renault, head of high yield at WestLB Mellon Asset Management agreed chances of a Greek exit were high at between 60% and 70%. Paul Brain, head of fixed income at Newton Investment Management said Greece will abandon the euro within two years.

Insight Investment’s head of UK and global credit Peter Bentley estimated the likelihood of a Greek exit at around 30%, saying political will should keep Greece within the currency zone due to fears over the fallout – in particular a sell-off of other peripheral European assets.

Some economists are predicting a Greek exit from the Eurozone as soon as July. Domestic political pressure is building ahead of Greece’s next election, due to take place on 17 June. Recent gains made by parties on the extreme left and right sparked fears the mandate for austerity measures has been lost. In light of the mounting risks, managers were asked what assets investors could rely on to steer them through uncertainty.

Renault warned risks of investing in European sovereign bonds were increasing, especially in the short term due to the situation in Greece. For Brain, some government bond yields are attractive, depending on whether the peripheral economies in question are fundamentally solvent or not.

“Greece has been insolvent for the past two years,” he said. “Portugal is in the same position. [Its] bonds are trading as if there has been a haircut already.” But Italy and Spain are different and opportunities exist to invest in both, he said.

 

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