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It's all over for bunds say Germany's top fund managers

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It's all over for bunds say Germany's top fund managers

DWS' Klaus Kaldemorgen, Star Capital's Peter Huber, DJE's Jens Ehrhardt and Bert Flossbach at Von Flossbach & Storch spoke out jointly for the first time on why German government bonds are going to be a losing investment in 2013.

In a bid to find a safe haven, many investors bought 10-year bunds yielding 2% last year, below the level of inflation.

'I think that we're going to see a form of normalisation kick in for bunds and treasuries this year as investors go into other assets,' said DWS' Kaldemorgen.

Kaldemorgen, (pictured), who runs the absolute return fund 'Concept Kaldemorgen' said he would be shorting German bunds this year - and expected this to be a trend followed by other investors.

'You can slowly see that people are coming out of bonds and are going into dividend-paying assets and equities,' said Ehrhardt.

Yet, according to Flossbach, the concept of the 'Great Rotation' out of bonds is still at an early stage.

'You hear lots in the media about a great rotation, but actually, when you look at what institutional investors are holding, it is still mainly bonds,' said Flossbach. 

'The idea that a surefire way to lose your money is through cash and bonds, hasn't really dawned on investors yet,' he added.

The biggest risk agreed by the panel, chaired by fund selector Eckard Sauren, came from rising interest rates.

'No government can afford to raise rates at the moment,' said Huber.

'It's not going to help the debt burden of euro sovereigns nor is it positive for growth.'

Arguing that inflation was on a downward trend due to falling wages and isolated pockets of property price rises in Europe, Huber expressed the most positive stance on fixed income. 

A summary of the four different views by the veteran managers on inflation expectations, the euro crisis, currencies and the move out of fixed income, will be available shortly on Citywire Global.

The comments were echoed by Michael Hasenstab, manager of the €66 billion Templeton Global Bond fund, who warned investors to get out of supposedly safe government bonds before it was too late.

Hasenstab famously took large positions in Irish and Hungarian government debt last year, but told the Financial Times last night: 'The downside of being early is very limited. You’re not participating in any 11th-hour rallies, but it’s not like you’re losing money.'

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