Following June’s EU referendum, the multi-asset investing team held 2% in gilts across the managed range as a tactical overlay on the expectation of a Bank of England base rate cut.
The central bank eventually acted in August, at which point 10-year gilt yields fell to just 0.5%.
By the end of October MyFolio, which had around £10bn ($12.7bn, €11.9bn) in assets under managment, had completely sold out of government bonds, excluding absolute return bond funds and inflation-linked holdings.
“2016 has been a year of surprises and at one stage 40% of the world’s bond markets where in negative territory, where you were actually paying governments to look after your money,” said SLI’s head of fund of funds, Bambos Hambi.
“In the UK, 10-year bond yields got down to 0.5%, whereas when we launched MyFolio six years ago, they were trading between 3-4%.
“What we’ve done gradually is take all of our government bonds out of our strategic long-term allocation – we have none for the first time. We reduced it from 2012, we took more out last year where only our Risk 1 fund had a strategic allocation to government bonds. In October, we sold out completely.”
He added: “We believe this is a multi-year story. Bond yields are abnormally low, even at today’s 1.4% for UK 10-year bond yields. However, we are prepared to tactically allocate over a 12-month view, as we did in June when it played out in three months.”
In recent weeks, some commentators have speculated about a return of a ‘great rotation’ in institutional and retail portfolios as investors sell out of bonds and move into equities – markets have remained buoyant despite the shock result of the US election and events across Europe this week.
According to Bank of America Merrill Lynch, $27bn globally was invested into equities in the first week after Trump’s victory, while bonds saw their biggest outflows for over three years at $18bn.
Hambi said he has also witnessed this trend within the past two months, for the first time in years.
“We have seen a start of a great rotation, though I don’t know if it’s a false dawn, but it could happen,” he said.
“It has been happening in Japan over the past couple of years, but in the past two months we’ve seen it start to happen in the rest of the world.”
Unlike many of his more cautious peers, Hambi is currently “pro growth assets” with positive views on US and Japanese equities, while also favouring certain absolute return strategies.