Aviva Investors sees risk assets doing well over next six months

By Vidya Ranganathan

SINGAPORE (Reuters) - Global asset manager Aviva Investors is buying high-yielding corporate bonds and stocks as the environment for risk-taking improves across financial markets, the group's head of investment strategy said.

The more aggressive investment strategy is based on the view that the Federal Reserve will take a more cautious approach to monetary tightening over the next six months and that most of the collapse in commodity prices has already worked its way through markets. Additionally, the risks of a sharp slowdown in China appear to be receding.

"We're taking the Fed at its word for the moment, allocating to all these asset classes," Ian Pizer, who's also a portfolio manager for Aviva's multi-strategy target return fund and target income fund, told Reuters.

"However, our balance of risks is that inflation is coming back more quickly than the Fed forecasts. We are not in the camp that thinks the Fed has made a policy mistake and the next move will be a cut."

Aviva has increased its exposure to stocks, particularly emerging market equities that stand to benefit from the Fed's delayed pace of rate rises.

Aviva Investors, the global asset management business of U.K. insurer Aviva plc, has $427 billion in assets under management and takes a multi-year approach to investing. The multi-strategy target return fund has $3.6 billion in assets.

While Aviva maintains its long U.S. dollar positions, it has trimmed those positions since last year. It no longer has long dollar positions against the euro (EUR=) after the European Central Bank this year flagged that it would not pursue a weaker currency to stimulate economic growth.

"In this environment, there's no point in us saying the Fed is going to flip," he said. "So we want to make sure that if they are right, then we want to look for exposures to the dollar that are fairly protected in that environment.

"The balance of risks is for a stronger dollar but the central case is that possibly over the next six months, we don't expect to see another leg on that dollar rally," Pizer said.

In Asia, Aviva holds local currency bonds in Indonesia and likes long-term exposure to India.

Aviva has short positions on China's yuan. Even though Pizer does not expect a sharp depreciation of the currency, he believes China presents the biggest threat to the fund's exposures in Asia.

Pizer's favourite trade is to short the Australian dollar (AUD=) against the dollar - even if the Fed goes easy on monetary tightening, there are reasons for the Australian central bank to keep the Aussie weak, he says.

If the Fed were to change its mind and hasten the rate rises, the short Aussie trade would do even better.

(Editing by Sam Holmes)