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Economic downturn will reignite demand for government bonds, says Newton

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The economy still has some way to go before investors can afford to reduce their allocation to government bonds, says Paul Brain, fund manager at Newton.

The economy still has some way to go before investors can afford to reduce their allocation to government bonds, says Paul Brain, fund manager at Newton.

Brain says the pendulum will swing back to government bonds in the near future, especially as the market has been oversold in recent months.

‘There is a feeling that the party has come to an end and that we must now contend with the economic hangover,’ he says.

‘In January the headlines screamed ‘depression’. Since then we’ve galloped through ‘recession’ to talk of ‘green shoots’ and now outright ‘recovery’. We think this severely overstates the progress we’ve made so far and that we will still see a period of prolonged economic weakness, despite the improving health of markets.’

Brain took over leadership of the Newton International Bond Fund six months ago. Over 25 per cent of the portfolio is now invested into agency or supranational bonds or bank bonds with government guarantees.

He has also reduced the fund’s yen weighting by over 11 per cent and allocating more of the fund to commodity-related currencies such as the Australian and Canadian dollars and the Norweigan krone.

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