James Foster, strategic bond fund manager at Artemis, has slashed bank exposure in the firm’s £541m Strategic Bond fund and doubled its exposure to insurance companies.
He has reduced bank exposure from 25 to 14% in the last 12 months and raised weighting to insurance companies from 6 to 12%. Foster says: “As banks have rallied, I have been swapping exposure into insurance companies. Banks have been given a shot of heroin in the form of liquidity through long-term refinancing operations and eventually they have to go cold turkey. Banks still have got to write down an awful lot of loans.
“There is concern about the impact of Solvency II on insurance companies and yields are reflecting a huge amount of risk. Friends Life is yielding a whopping 18% and there is the perception that some of these bonds will not get called. I do not agree that is a high risk.”