“In medium risk, we will typically have between 55% and 75% in equities. A lot of our active funds have overweight positions to UK small and mid caps, with a focus on the UK domestic economy. We are staying away from FTSE 100 because of the mining element and the issues with China slowing down and reducing commodities imports. “China is not the only country in emerging markets but what we have seen is that with the debt-fuelled expansion, it is going to be a very hard time as we move into a rate-rising environment.” “We increased our allocation to Europe ahead of the launch of QE, and there is still a suggestion of further easing, so there could be more to go for European equities and further weakening of the euro.”
Emerging from the shadows
Webster-Smith says that while he is yet to be fully convinced, on valuation grounds it is arguably now time to start looking again at emerging markets. “With commodities-related equities, for example, you need to move before they cut supply rather than after when prices have jumped back up. It is not a certainty that supply will be cut soon but, for medium risk upwards, you have to look at things that are currently out of favour. ”Webster-Smith’s portfolios have a small but still significant allocation to Japan. “We are very comfortable holding nothing in an asset class, which was the case for sometime with Japan, but we now have around 6% invested there.
“However, there is still a lot of volatility and things can stay cheap for a very long time. The good thing is that the quantitative easing programme seems to be aimed at the stock market. ”A large part of the Japan exposure is through GLG Japan Core Alpha. “Changes in Japan’s corporate culture are not going to happen tomorrow or next year. It’s a generational change. Will they get there? They are certainly trying. In the short term, we remain invested as more QE is possible and valuations still don’t look stretched. We probably won’t increase our weighting though.”
The sum of all its parts
On fixed income, Webster-Smith emphasises the importance of considering different elements of the asset class separately rather than seeing it as a singular entity. “You read a lot about ‘the bond market’ but it’s not particularly fair to think of the bond market as one thing, as different parts will have different conditions at any given time. Some bonds are very sensitive to interests rates but others aren’t, so it is a case of needing to be very careful where you invest in the market.
