Georgina Taylor, product director on the fund, said: Although the consumer is generally holding up well, there are other drags on economic growth. This may influence the direction of interest rate policy.” The team does not see inflationary pressures emerging, with competitive currency devaluation likely to keep inflation subdued. As a result, the funds are running with a duration of near-zero.
This competitive devaluation is also likely to create volatility and this is now an important theme in the fund. The group has increased the ‘neutral’ holdings in the portfolio – i.e those that are neither ‘risk on’ or ‘risk off’, in response to this likely volatility.
The group entered and swiftly exited a trade on emerging market equities versus US equities. Taylor said they had originally thought there was a valuation opportunity in emerging markets, but continued deterioration in earnings led them to revise their view. She added: “The fundamentals behind the idea changed.” The group entered and exited the position within two months.
Elsewhere in the portfolio, the group has a number of positions based on the idea that Australia will lower interest rates. Taylor says: “Commodities risks are not fully priced into markets and we expect interest rates to come down.” The team is also positioned for Swedish rates to move more in line with the rest of Europe.
Fund performance has been steady during the volatility seen since August. It is up 1.1% over the past three months, compared to an average fall of 0.1% for funds in the wider IA Targeted Absolute Return sector. Taylor said that all the funds ‘risk off’ ideas performed well during the market rout, alongside a number of its ‘risk on’ ideas.
