In 2008 and 2009, he said, there were still places to hide, we had a lot of euro-denominated bonds for example. Now, it is a lot harder.
Still in their infancy, Gray is happy with the current positioning of the funds, but he says he and co-manager James Sullivan don’t like a lot of earnings valuations currently. “If there is a bit of a setback, it will be a struggle in a lot of areas,” he said.
As a result, at the moment, the funds are heavily exposed to cash (as much as 30% in its defensive fund currently) the power of which should not be underestimated, Sullivan says. The funds also have around a 5% allocation to gold.
“I like to buy when things are falling and sell when things are rising,” Gray explains.
Currently though the firm does see some opportunity in Japan, the ASEAN economies and in Latin America.
“We have stood back a little from South East Asia at the moment, because we think it is currently a little on the expensive side, but we like it going forward,” Gray added.
The funds also have between 5 and 10% weighting to Japan, but the pair expect volatility within the country to rise. As Sullivan explained, the region does have its risks.
In its most recent investment note, however, Sullivan writes: “We are likely to be supporters of Japanese equity markets and Japanese residential property on the expectations that continued loose policy will further inflate these asset markets, despite the ongoing drama of economic Japan. With this in mind, we will also have to accept there will be waves of sentiment and with that comes a pickup in volatility.”
The two also expect opportunity to be found in the emerging market debt market this year because the ongoing strength of the dollar is likely to put pressure on dollar denominated debt.
This kind of investment process, buying when others are fearful served the two well during their time at Miton and is is also evident in their view on Brazil, where they believe the situation is not as bad as some have made it sound.
As Sulilvan points out: “Asset markets look fully valued across the board, it is hoped (and expected) that the recent increase in volatility will continue and open up investment opportunities. Debt and leverage levels have exceeded credit levels of 2007 so that any sell offs are likely to be more erratic and perhaps more exaggerated than we have seen during the last three years.”
