“In the UK, we have zero exposure to mid-caps and have done since February. If you use MSCI classifications, the FTSE 250 is considered small cap and, thus, when compared with the US small-cap sector it looks expensive, especially given the unclear risks around Brexit,” he says.
Decent exposure
At a broader level, the firm is neutral UK assets but that exposure is all to FTSE 100 stocks. Within emerging markets, the firm is underweight. Where it can have around 10% in its highest-risk funds it currently has 3%.
“The quality cycle seems to have turned, but we are not overly convinced that the emerging markets cycle has turned and it is not that cheap,” says Port.
“I don’t see much in the way of global trade, which is important for emerging markets, and the domestic economies are not doing particularly well. If you look at Brazil, for example, there was significant equity performance this year but the fundamental economy has got a lot worse.
“For emerging markets we have core holdings that tend to be broad-based and then we do single country names.”
This is not easy to do when using ETFs but the key thing, according to Port, is to ensure the vehicle you use is actually an index you want to track. It can be a good way of building up exposure because of the heterogeneity of the emerging markets universe.
The firm had a small exposure to Indonesia but sold it at a profit this year. Right now, says Port, “Mexico still looks very interesting but we still haven’t taken the plunge”.