It took Royal Dutch Shell, GlaxosmithKline, BP and a 2012-dated gilt yielding 5.24 per cent from its top ten holdings, and added in a 2040 US Treasury bond, and a 2060 4 per cent gilt, among others.
The move by Trustnet Alpha Manager Quentin Fitzsimmons comes after the fund significantly outperformed its Cautious Managed sector over three years, returning 13 per cent, compared to a two per cent loss from the sector.
Performance of sectors over 1-yr
Source: Financial Express Analytics
The change in holdings comes as investors and IFAs alike are questioning why gilts make a good investment right now.
Performance of sectors over 1-yr
Source: Financial Express Analytics
Performance of sectors over 10-yrs
Source: Financial Express Analytics
"Since March gilts have had a very good run, but a 10-yr gilt is now offering a yield of circa 3.3 per cent. When RPI is at its current level it makes you wonder why anyone would buy a gilt?" Graham Toone, said head of investment research at AFH Wealth Management.
James Davies, investment research manager at IFA Chartwell group, takes a similar view, saying yields on gilts are relatively unattractive compared to other asset classes. He points the finger at nervous investor sentiment for driving investment into gilts – as well as T-bills, cash and gold.
"The new coalition government here in the UK has done a good job of communicating to the bond market that they will make tackling the country's deficit their primary goal. Even Bill Gross of PIMCO, a bellicose bear on UK government bonds only recently, has reversed his view on the back of the budget cuts announced," he said.
The manager adds that, while gilts have a place within most diversified portfolios, Chartwell is not positive on the asset class.
"The inflation versus deflation debate is one that we have all the time here at Chartwell. I am an inflationist for a variety of reasons, but I do feel that we are perhaps 6 months away from it becoming a problem that requires action," the manager added.
Trustnet Alpha Manager, Alex Smitten runs the Cazenove Income for Charities and UK Corporate Bond funds. The former fund is obliged to hold 50 per cent in gilts to minimise risk, but he agrees corporate bonds offer more value.
"From a yields vs inflation rate view gilts look extremely poor value; some shorter maturities are even offering a negative yield; For example two year yields are 0.8 per cent and CPI inflation is likely to be somewhere around three per cent for much of the next two years," he said.
"Corporate bonds we favour currently include senior bonds of the better capitalised major banks. Some of the major US banks look attractive given their capital ratios and high levels of provisioning," said Smitten.
All of this negative sentiment on government bonds makes Fitzsimmon's decision look almost counter-intuitive. But Smitten points out that a weakening outlook for global growth means official interest rates will stay lower for longer, and so other asset class returns will be low, too, partly explaining the move.
"Gilts don't look like a great buy do they? However, now we have a government focused on fiscal consolidation the outloook seems brighter for the market. We do need to see inflation start to moderate though - and, indeed, this is what the Bank of England has been forecasting," said Fitzsimmon's.
"It is true to say that the underlying bond funds that we allocate to now have more exposure in long-dated government bonds - we like this part of the market as yield curves in the UK and US are especially steep and long bond yields of 4 per cent or more look attractive investments when compared with next to no return on cash," he added.