Top Scots fund manager strikes a note of caution

City Editor

Monday 30 July 2012

IGNIS Asset Management's fixed income expert Chris Bowie has taken an increasingly defensive stance as his ability to dodge market dangers helped him to a fifth consecutive month at the top of The Herald's table of top-performing fund managers working at Scottish house.

TOP SCOT: Chris Bowie, manager of Ignis Corporate Bond fund. CAUSE FOR CONCERN: High youth unemployment is causing unrest in Spain. Picture: Emilio Morenatti

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TIM SHARP CITY EDITOR

In recent weeks Mr Bowie, manager of the Ignis Corporate Bond fund, has sought to trim further his holdings in banking paper and warned that even well-managed non-financial businesses could be hit if Europe was to suffer another wave of sovereign downgrades at the end of the summer.

He told The Herald: "Things are as bad as ever."His response has been to reduce the riskiness of his portfolio by selling banking stocks.Financial paper makes up just 17% of his portfolio, some 11 percentage points below the benchmark.Gone are eurozone institutions and he is also eschewing US investment banks. He said: "The banks that we have are UK banks like HSBC and Standard Chartered. "They are banks that pay tax in the UK but have a global footprint and are in parts of the world that are experiencing growth."He remains concerned that the eurozone crisis is having a grave impact on some countries' economies."Greece looks like it is going into humanitarian disaster. Spanish youth unemployment is really bad," he said.Mr Bowie also noted challenges from outside the currency bloc."The China slowdown was worse than expected. And retail sales in the US have been surprisingly weak."There is enough out there to make me very nervous," he added.In addition he cautioned that banks could be hit by rises in bad debt from real estate lending, including, potentially, residential property loans, if unemployment increases further."I am worried and I do not think all of that risk is in the price," he said.He also warned that sovereign downgrades, perhaps of Spain which is hovering just one notch above junk status, or Italy could hit the market."They are a huge risk to non-financials now," he said.Companies' credit ratings are rarely more than a notch above that of the state in which they are based.This could create potential difficulties for holders of paper in companies such as Spain's Telefonica – owner of UK mobile phone operator O2 – if it was downgraded as many funds are forbidden from holding non-investment grade stocks.This could lead to forced sellers flooding the market with paper, he said.A potential catalyst is a sovereign ratings review, being conducted by agency Moody's, which is due to report in the next few months.Mr Bowie, head of credit at Glasgow-based Ignis, said he had instead sought refuge in areas such as sterling covered bonds, which are backed by high-quality residential mortgages."My gut feeling is that markets are going to re-test the ability of the eurozone leaders to come up with a solution this year," he saidMr Bowie, who previously worked for Scottish fund managers Aegon Asset Management and Murray Johnstone, rose from ninth to seventh spot in the UK table, when the rankings for the three years to June 30 were compiled by publisher Citywire.He headed an unchanged Scottish top-three.Immediately below him sat a duo from Baillie Gifford. Robert Baltzer, manager of the Edinburgh house's high yield bond and investment grade long bond funds remained in second spot. He stayed ahead of colleague Stephen Rodger, who runs its investment grade bond and corporate bond funds.The Citywire rankings are based on risk-adjusted performance against relevant benchmarks. Fewer than one-fifth of fund managers in the UK qualify for Citywire ratings, of which there were 233 last month.

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Top Scots fund manager strikes a note of caution

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