Conviction sells off Italian bond positions as eurozone risks increase

Parisian boutique fund manager Conviction Asset Management has withdrawn its investment in short-term Italian debt and cut back on other exposures to the country, as well as reducing its exposure to Spain, after the risks of holding those assets returned markedly.

The weight of pressures on Italy’s economy has caused fund manager Alexandre Hezez and firm President Philippe Delienne to switch their short-term outlook on the country to negative.

In October 2011 Conviction Asset Management announced it had begun investing in Italian, Spanish, and Irish bonds, a contrarian decision given the high volatility experienced in the peripheral European bond market since August of that year.

The ECB’s asset purchases alongside its promise to give unlimited liquidity prompted the firm’s move. A number of other French managers followed suit when in December 2011 the ECB announced its long-term refinancing operation (LTRO). They anticipated the intervention would further bring down yields on the peripheral European bond market.

In the first few months of 2011 that prediction proved correct. But the positive effects of the ECB’s long-term refinancing operation (LTRO) have worn off. Spreads on Italian and Spanish bonds have again reached dangerous levels. In the past month, CDS rates on European corporates, banks, and sovereign bonds have increased.



Six months on from its decision to begin investing in Italy and Spain, Conviction Asset Management now holds less than 2% of its portfolio in Italian assets – a mix of mainly Italian investment grade corporate debt, high yield bonds, and equities.

Between 30 December 2011 and 23 March 2012, the firm took large positions of more than 30% in mainly Italian sovereign debt, as well as some other asset classes. It subsequently sold off that debt. It resumed purchases of Italian debt and other asset classes on 30 March, but as a greater mix and only ever making up 5% of the overall portfolio. On 13 April, it sold off all its Italian sovereign bond positions.

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