The manager of Miton’s multi-asset fund range said the chase for returns has driven capital into riskier areas of the market and these trades have now begun to unwind, particularly certain emerging market bonds, some bank debt securities, Chinese equities, the commodities complex and its debt and equity.
At the same time policy makers continue to try to stimulate a rate of growth inconsistent with reality. “We have for a number of years had two core investment theses: our ‘lower for longer’ world view and the belief that a ‘new monetary regime’ is in place post the global financial crisis,” he said.
Lower growth, lower inflation and lower interest rates caused by stagnant population growth in the developed world and a combination of a maturing Chinese economy, debt overhang and excess capacity have lead to a “broadly deflationary low growth environment,” noted Jane.
Moreover, governments and central banks are pursuing an interventionist monetary policy via QE instead of merely setting short term interest rates, where demand is lacking today, he added.
Due to this, Jane is avoiding being particularly dependent on the future path of policy or the economy.
“We focus on areas that have solid fundamental drivers, with low leverage in equities and good quality short dated fixed income.
“Value appears to be emerging in certain parts, as the market tends to tar all securities in an area with the same brush during big sell-offs, but as a generalisation we would rather take the long way round, and avoid the minefield altogether, rather than risk our capital preservation focus by stepping on a mine.”
