Rathbones Cut Gilt Exposure in Case Burnham ‘Does a Truss’

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(Bloomberg) — Rathbones Asset Management has reduced its holdings of UK government bonds to avoid a potential selloff if Andy Burnham boosts spending and raises borrowing.

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David Coombs, head of multi-asset investments at Rathbones, said the money manager has sold long-dated gilts across a £9.8 billion ($13.1 billion) portfolio of cross-asset funds to protect against “fiscal irresponsibility.” A major decision facing Burnham, the UK’s likely next prime minister, is the choice of Rachel Reeves’s successor as Chancellor of the Exchequer.

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“The gilt market presents us with a real dilemma right now,” Coombs said in an emailed response to questions. “One is that Burnham ‘does a Truss,’ or at least appoints a chancellor that is fiscally looser than Rachel Reeves.”

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Longer-dated bonds would get hit the most in such a scenario, according to Coombs, prompting memories of the gilt crisis triggered by former Prime Minister Liz Truss in September 2022, when she and former Chancellor Kwasi Kwarteng announced £45 billion of unfunded annual tax cuts. Burnham previously wavered and then committed to maintaining Reeves’ fiscal rules around spending and borrowing. 

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He’s set to replace Keir Starmer as Labour leader on Friday, with his confirmation as prime minister and cabinet appointments expected on Monday.

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Frontrunners for the role of chancellor include former Labour leader Ed Miliband, who is perceived to favor greater government spending. Another potential candidate is former Health Secretary Wes Streeting, seen more on the Labour party’s right.

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UK’s Miliband Seen as Least Appealing Chancellor: Markets Pulse

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To be sure, there’s a chance Burnham appoints “a fiscally conservative chancellor and really addresses welfare costs,” Coombs said. “If inflation falls to below 3% due to lower energy costs, then real yields look attractive and duration works.”

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Cautious Stance

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Rathbones had already cut its gilt exposure before Burnham re-entered Parliament with his victory in the Makerfield by-election last month. 

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UK government bond holdings in the £3.6 billion Multi-Asset Strategic Growth portfolio fell to 6% in May, from 9.2% in December, fund factsheets showed. The fund, which is Rathbones’s largest multi-asset fund, is up 2.6% since the start of 2026, following an 11.5% return last year. 

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Average duration across the money manager’s multi-asset funds now ranges from five to six years, compared with longer than seven years for the benchmark FTSE Actuaries UK Conventional Gilts All Stocks Index.

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“We retain a significant exposure in shorter and medium-dated bonds as the high nominal yields provide some inflation protection,” said Coombs.

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Multi-asset funds across the UK have cut their allocation to gilts, according to the investment data firm Morningstar, even as they have increased their exposure to global bonds. “We have diversified our sovereign exposure to New Zealand, Australia, Norway and more recently the US to reflect the higher credit risk that the UK has right now,” Coombs said.

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