The firm believes growth assets will gain support after the positive impact of the Donald Trump victory November, Stopford told FSA on a recent trip to Hong Kong. A global economic expansion is likely to continue, largely supported by US economic growth and leading to a pickup in earnings over 12-24 months, he said.
More specifically, he said he likes select equities and high yield corporate bonds, however, the fund has no EM equity exposure.
“We can’t find equities that have the mix of characteristics we want — reasonable but sustainable yield and attractive [potential growth].”
Resource companies like oil producers have high yields, but sustainability is an issue, while those with good prospects are too expensive, he explained.
The fund has about 20.6% exposure to emerging markets, but most is to local currency debt, which is hedged. Short-duration bonds could be well supported by falling inflation and high yields, which can absorb some of the interest rate hike in the US, he noted.
EM risks
Emerging markets saw $24.2bn of outflows from foreign investors in November, which included $8.1bn leaving equities and $16.1bn from debt, according to the Institute of International Finance.
But Stopford believes “we are closer to a buying opportunity than a selling opportunity. We need some clarity of Trump’s agenda, but so far we are seeing positions squaring, rather than a fundamental-driven move.
“The losers are more likely to be North Asia, where you have low yields, and already some underlying weakness like the RMB. Currency devaluation can go further, while trade restrictions and tariffs would be quite damaging,” he added.
The fund manages event risks by listing up to five possible cases that could happen in the next 12 months, and then the team assesses how likely they are to happen, the potential impact on financial markets and how they will hedge the risks, he said.
One of the five risks is the Italian referendum, which was hedged by a short position in the euro.
The other four are more open-ended, he continued. “One that we don’t think is a near-term risk, but might be toward the end of next year, is the risk of a hard landing in China.”
The government is keen to maintain stability before the leadership transition takes place in October next year, he explained.
“But we do worry that the tightening of lending conditions for mainland property could push the market down and cause a hard landing in the home market, which could potentially be felt through the wider economy.”
The fund is hedging this risk by shorting Asian currencies.
Other risks include a sharp hike in bond yields, oil prices soaring and a risk that Deutsche Bank’s subordinated debts will not be bailed out by the goivernment. The fund has hedges for the risks, he added.
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The performance of Investec Global Multi Asset Income Fund (Class C Gross Income) has beaten the interntaional mixed asset funds category in Hong Kong over the three-year horizon, according to data from FE Analytics. The fund has no benchmark.
