(Bloomberg) -- 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.

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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.

M&G has been adding 10-year and 30-year bonds in the three major markets, and bought more recently as the market sold off, the 24-year investment veteran said. Long-term yields will peak, she said, without giving specific levels.



Ten-year yields have jumped 102 basis points since the start of August, while the 30-year yield is up 110 basis points over the period. The S&P 500 Index has declined nearly 9% after hitting a 16-month high at the end of July.

“We are still invested in equities because we feel that there’s so much uncertainty in the market right now that you really need to stay diversified,” Fedeli said. There’s “still a lot of value that we find in pockets of equities,” she said, adding that Asia is in a good position relative to the rest of the world.

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