Treasury Rout Lures M&G to Buy More as US Stocks Seen Too Risky

US stocks carry too much risk and buying Treasuries will pay off, according to M&G Plc as the $402 billion fund house navigates the brutal selloff in global markets.

The strategy — with US equities now its biggest underweight —- is predicated on the risk of recession in the world’s biggest economy and the Federal Reserve nearing the end of its tightening cycle, said Fabiana Fedeli, chief investment officer for equities, multi-asset and sustainability. And despite the months-long rout in global debt markets, M&G has stepped up purchases of long-dated bonds in the US, UK and Germany since August, she said.

“The equity risk premium now is quite high,” said London-based Fedeli, arguing that the shift away from US stocks isn’t an extreme move. “You’re looking at growth possibly declining everywhere in the world.”

M&G’s playbook is contrary to the fear gripping markets in recent weeks, as traders priced in a more resilient US economy and interest rates staying higher for longer. Treasuries have continued to sell off this week, after a brief respite, even as billionaire investor Bill Ackman exited short positions and said growth is decelerating faster than data indicated.

The US is due to report third-quarter gross domestic product later Thursday, with economists expecting an annual growth rate of 4.5%, more than double the pace in the prior period, according to a Bloomberg survey.