Newton IM cuts gilt duration ahead of UK election

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Newton Investment Management’s Howard Cunningham, fixed income manager, has explained recent portfolio changes and the prospects for gilts and sterling ahead of the UK general election tomorrow.

“This quarter promises to be a choppy one for gilt and sterling investors with the UK general election still too close to call and external factors such as the Federal Reserve preparing for ‘lift-off’ and the unresolved Greek situation could inject further volatility,” he said

Ahead of 7 May general election, more volatility is reasonably expected, as it happened in the days before the Scottish Referendum last September, Cunningham also said.

“Sterling is most likely to feel the heat, despite its recent declines. In the short term, gilts may remain better supported, shorter maturity ones at least, as supply will be limited and uncertainty in other domestic asset classes may be even greater.

“The real problem for gilts could come after the election in the event of either the Scottish National Party holding the balance of power and agitating for another referendum on Scottish independence, or a Conservative/UKIP coalition leading to an in-out referendum on EU membership. Either of those scenarios would inject uncertainty, hit confidence and deter investment, which could put back the need for rate increases by the MPC faced perhaps by a weaker growth outlook,” he concluded.




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