Manager Percival Stanion, head of asset allocation at Barings, says he favours economies such as Australia, Mexico and Poland as they are markets with high real interest rates and few credit quality issues on the horizon. In fact weightings to Australian government debt have been steadily increased across all of Barings’ multi-asset portfolios, including its flagship, £3.4bn Baring Dynamic Asset Allocation Fund.
“We believe these bonds are less exposed to those risk stress-points many investors are concerned with, particularly low growth rates in developed markets and inflation in the emerging markets.” Australian bonds are priced for continued economic acceleration across Asia and should offer effective protection should regional growth moderate or slow over the coming months, he adds.
Although the new Dynamic Emerging Markets fund targets long-term returns associated with emerging market equity, it does have the freedom to invest outside these markets, hence the 20% weighting to Australian bonds. Stanion says the fund can even invest in US Treasuries should it be warranted to reduce risk in periods of volatility and the fund will have a minimum of 70% in emerging market assets or currencies at all times.
On top of the Australian weighting the fund has a further 19% in EMEA government debt while Latin America sovereign bonds account for 13% of the fund and Asian debt another 6%. The portfolio is also holding 7% in gold bullions.
With around 33% in equities the multi asset fund is structured with a low risk profile at the moment. Stanion says: “Looking ahead, a sharp selloff in asset prices, a significant improvement in emerging market inflationary pressures, or an oil price collapse could all potentially trigger an improvement in the outlook and an increase in our overall appetite for risk assets. But for now we are content to keep risk down at the lower end of the spectrum.”
Within the equity holdings the portfolio is biased towards growth stories and China.
