Less than a month ago, Hambi upped his exposure to US equities to exploit the increasingly reflationary environment in America, reducing his UK fixed income holdings in the process.
US equities remain the largest overweight in his multi-manager range, but this month, he has chosen to focus on bolstering his underweight Europe position to neutral, again, to the detriment of his UK weighting.
“We are more positive on European equities because we have seen better corporate profits growth so far due to an improvement in global activity and some pretty positive business surveys at the turn of the year,” Hambi explained.
He also said higher commodity prices and steeper yield curves had helped convince him to up his European exposure.
However, he doesn’t intend to bring his Europe weighting any higher than neutral because “there are still come concerns” on the continent, like “the lack of strong credit growth” of the European banks and the potential “contagion effect” if Greece were to exit the EU.
In addition to beefing up his European position Hambi has increased MyFolio’s Japanese equities, an area where he is already overweight, and Asian equities, though is still small underweight in the latter.
“Japan is more sensitive to the uptick in global growth,” he said. “And it has the added diversification benefit of being exposed to the defensive characteristics of the yen. When things go badly, the yen is one of the currencies people flock to. It’s a nice little hedge to have.”
But he has taken the portfolio underweight UK to fund these increases in overseas equities and has moved money out of global REITs and EM debt this week.
“We don’t see the UK as having severe problems,” he stressed, “there are just better economic growth and better profits growth overseas. Property is still a key long-term asset class for us but tactically, we see opportunities elsewhere on a 12-month view.
“Our preference is still very much to the US dollar and US equities due to the interest rate differential. We think interest rates will be hiked two to three times this year and three to four times in 2018.”
Simply put, “capital flows will favour US assets” and Hambi sees clear benefits from Trump’s corporation tax package.
The UK on the other hand, looks less appealing, not just because of Brexit but also due to the large current account deficit. “We see further impacts to sterling down the road too.”
