Schroders Italy ready to pick up risk with fresh political commitment

Over the last two months, Schroders Italy Private Banking has reduced the risk profile in its discretionary portfolios, on the back of increasing concerns coming from peripheral Europe.

But it is ready to change its strategy quickly in case of a fresh commitment from European leaders to support the eurozone and its weakest members.

“In March, we started to reduce our risk profile, both in equities and bonds, taking profits from the rally in high yield and euro government asset classes. We  increased the weight of the dollar through US equity funds, as hedging versus euro concerns. We have continued this trend until the beginning of May and we are now waiting for some response on political facts,” Matteo Belleri, portfolio manager at Schroders Italy.

Schroders’s decision is based on the real effects of the long-term refinancing operation (LTRO) loan scheme announced by the European Central Bank at the beginning of the year to help ease the effects of the Eurozone crisis.

“We have benefited from LTRO investing mainly in corporate and covered bonds, but we feel that the policy has not triggered structural changes. It has acted as a temporary ‘drug’, in particular on the bond component, but sovereign debt issues are yet to be solved,” Belleri says.

Schroders Italy Private Banking also decreased convertible high yield allocation, moving investments to more conservative corporate assets on the back of concerns over a possible Greek exit from the eurozone, which peaked again in mid-May.

According to Belleri, a Greek exit from the monetary union could prove less expensive for the market than what expected, as French and German banks have already partly paid for this cost over the last months.

“Our concern is the domino effect that a disorderly exit would have on Italy and Spain. For this reason, we have also reduced government bonds duration maintaining the Italian government exposure in our portfolios. At the moment, we are in a conservative position, but we are also flexible and ready to pick up risk again quickly if the outcome of French and Greek elections in June will show renewed political commitment to the euro project,” the manager adds.

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