AppId is over the quota
AppId is over the quota
By Chris Vellacott
LONDON | Tue Jan 17, 2012 7:08am GMT
LONDON (Reuters) - International investors have taken comfort in Britain's aggressive moves to rein in national debt, with funds that made big allocations to gilts dominating performance tables for 2011, data from Lipper shows.
Seven of the 10 best-performing funds across all asset classes, out of more than 6,000 available for sale in Britain during 2011, were British-themed, according to Lipper, which tracks the investment industry.
The strong performances by funds focused on gilts reflects Britain's emergence as a safe haven from the mounting sovereign debt crisis engulfing its neighbours in the euro zone, investors said.
"The UK definitely fell in to the safe-haven camp. That's because there's a credible plan ... and more control over the levers of the economy than some others in Europe," said Howard Cunningham, who manages the gilt fund at Newton Investment Management that ranked eighth for the year.
The strong performance of gilts is surprising because Britain has suffered higher rates of inflation than other developed economies, eroding real returns from sterling-denominated investments.
"There is the inflation factor, but I think people are coming round to accepting maybe a negative real return isn't the worst thing that can happen to you," Cunningham said.
Britain, a member of the European Union trading bloc but not part of the euro currency union, has retained the ability to set its own monetary policy and print money.
This flexibility, and the perceived political commitment to its fiscal austerity programme, which includes unpopular public spending cuts, has helped Britain retain a coveted triple-A rating on its debt.
In contrast, last week Standard & Poor's downgraded the credit ratings of nine euro zone countries, stripping France and Austria of their triple-A status.
The move was greeted with anger in the euro zone and suggestions that Britain, as a highly indebted economy, should suffer the same.
But few investors are expecting a significant drop in demand for UK government bonds in the coming year.
"UK government bonds are very low yielding, and you could even say expensive," said April LaRusse, a fixed-income specialist at Insight Investment, which runs a UK government bond-focused fund that ranked fourth.
"But the fact is, when you try and think of reasons why they should sell off and yields should rise dramatically, all the reasons yields are so low are still there."
The latest round of European sovereign rating downgrades means the trend of rising gilt prices and falling yields has continued into 2012. The yield on British 10-year gilts came close to record lows on Monday.
German government debt has also seen yields fall as a broad-based flight to quality gathers pace.
"A year ago I would never have forecast that (German) yield would have been as low as it is now," said Didier Haenecour, manager of the Vanguard 30-40 Year Duration Euro Index fund that came top of the rankings with 33 percent growth.
Sachin Gupta, portfolio manager at PIMCO, which came second in the rankings, said many of the trends in 2011 will continue.
"I expect relative fund performance for 2012 similar to that of 2011. Risk aversion is more likely to remain the key theme, primarily driven by concerns about ongoing Euroland crisis. We think the crisis is unlikely to be resolved in a matter of weeks or months."
(Reporting by Chris Vellacott; Editing by David Hulmes)
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