Cole joined Pictet in 2014 and was named co-manager of the FP Pictet Multi-Asset Portfolio in June 2015, according to FE Trustnet.
At that time, Greece’s potential default and its impact on financial markets was a top-of-mind worry for investors, Cole told FSA. Despite that, the equity markets were doing well.
“But beneath the surface, we were looking at Chinese economic data, which was weakening materially and was unobserved by the market,” he said. “[The market was] still focused on Greece and the Fed.”
Analysis by Pictet’s multi-asset team showed that if investors caught on and started worrying about China, there would be downgrades to corporate earnings expectations globally, Cole said. This realisation was a signal for the team to start reducing their equity exposure dramatically.
Indeed, by August 2015, Greece was swept under the carpet and the global markets suddenly became worried about China, he said.
Investment approach
Cole describes his team’s approach as “thinking about what is going on behind the scenes, that the market really isn’t focusing on now, but might focus on next week, next month or next quarter.”
“[Investors should] think about the catalysts that would make them change their portfolio,” he said. In doing so, they are able to be one step ahead and anticipate how the broader consensus might change.
Since the global financial crisis hit in 2008, investors have been focused on downside risks, Cole said. However, those who have become too cautious have not been able to participate in the current equity bull market, he noted.
In its stress-testing analysis, the Pictet multi-asset team includes not only negative scenarios, such as a Russian default or a global financial crisis, but also positive ones.
“If we are going to have another dot-com boom, I think clients would be disappointed if we didn’t participate in some way. So you stress test for the upside as well as the downside,” he said.
Investment outlook
The current macro-economic backdrop supports equities over fixed income, said Cole, adding that the firm’s multi-asset strategies had around 60% of equities in their portfolios.
“We are in an environment where the global economy is in a synchronised and broad-based expansion,” he said, noting that there was little risk of unknown shocks in the foreseeable future.
Even though some market players believe that the US expansion is coming to an end and that the country may enter a period of slower growth, Cole disagrees. “We think that this economic expansion has been slow and moderate, and therefore, why wouldn’t it be longer?,” he said.
Considering that the global economy is growing faster than its long-term trend, and that Europe grew faster than the US last year, Cole said he expected Europe to perform the same this year.
Cole’s optimism on global earnings growth exceeds that of other analysts. “It strikes me that analysts are still estimating global earnings this year to be 10%,” he said. “Our model suggests 18%.”
“We think that the biggest surprise will come from Europe and Japan and we think that their valuations are cheaper compared to the US,” Cole said. He added that his preferred sectors were technology, industrials and financials, but he was less keen on utilities and consumer staples.
The three-year performance of the FP Pictet Multi-Asset Portfolio*, according to FE Analytics.
*The product is not a publicly registered fund under Hong Kong’s Securities and Futures Commission and the Monetary Authority of Singapore.
