“Whether or not we think Japan as an economy is a fantastic place to invest from a fundamental perspective is neither here nor there, it is all about the performance of the stock market and in the medium term it looks an attractive place to invest.”
Calder says the story for Europe is similar to that of Japan. On the back of its quantitative easing, he says the eurozone remains one or two years behind the US and UK in terms of monetary policy, meaning there is still plenty of room for modest upside from a market perspective.
At a 9% weighting in CAM’s balanced portfolio, Europe is at its highest weighting for some time, up two percentage points since the start of the year. One of his core holdings in the region, on a multi-cap basis, is the JP Morgan Europe ex UK Dynamic Fund, while he also holds Standard Life Investments European Equity Income and Henderson European Focus.
“This year has yet to end but as of the beginning of November, looking back on the year so far, stock dispersion is beginning to come to the fore in those markets that have stopped quantitative easing, namely the US and the UK. This has led to an increase in stock dispersion aiding active managers in their benchmark outperformance.
“For CAM, asset allocation moves have, to a degree, been significant, but so has the rotation of fund manager styles held in equities. It is likely that 2015 will be remembered as a year of wealth preservation and the beginning of the decorrelation of some asset classes.”
US down, UK steady
To make way for the increases in asset allocation to Japan and Europe, Calder has cut back the weighting to the US, falling from 11% in the balanced mandate at the start of the year to its current weighting of 8%.
At 25%, the UK still remains the standout equity allocation in the balanced portfolios and is at a level unchanged since the start of 2015. But within lower-risk mandates, Calder has started adding long/short managers to the portfolios again in both the US and UK.
“In our lowest-risk mandate, CPI plus 2%, we have added a couple of long/short UK and US funds as the risk/reward dynamic is no longer there,” he says. “These types of managers can grind out reasonable single-digit returns, which will be similar to the market, but the volatility in these funds is less and they can protect investors in more difficult environments.”
In the UK, CAM added the BlackRock UK Absolute Alpha and Henderson UK Absolute funds in the summer, while a more recent addition was RWC US Absolute Alpha. Away from equities, Calder says while fixed interest is still an important part of the asset allocation, it remains a very underweight position compared with history. At present, fixed interest represents 15% of the balanced portfolio, a figure not changed since the start of the year, but within that weighting there have been alterations.
“You could say we are rearranging the deck chairs on the Titanic,” he says. “We now have a chunk of the weighting in floating-rate notes, one-third in absolute return-oriented credit long/short managers, mixed with some specialist investment trust holdings and strategic bond managers.”
