“Although equities are volatile, we believe they are just experiencing a mid-term bull-run wobble and we are not seeing the start of a global recession,” he said.
The UK, US and Europe ex UK represent respective weightings of 34%, 22.4% and 18.4% in Stather-Lodge’s OBI 8 portfolio, though he is understandably bearish on fixed income.
“Europe is changing the focus of its QE programme and doing more to ensure QE has an impact with equities looking cheap against that backdrop,” he said.
“In contrast, if we look at defensive assets: government bonds look expensive; high yield bonds are offering poor returns; corporate/strategic bonds are also expensive, and cash gives no return.”
Cavaye is keeping a watchful eye on the fixed interest market.
“We have been significantly reducing our general corporate credit exposure over the last six months,” he said.
“We are concerned about valuations stemming from spreads coming down a bit, and also ongoing liquidity in the market. If we get a bit of squeeze then that liquidity could dry up quite quickly, and it is best to get out of it early.
“What we are really waiting for is yields picking up in the government bond space. We are currently underweight UK gilts, but if 10-year yields went up to 2.5% then we might nibble back into that.”
As ever, markets are unpredictable, but the raft of crosswinds lying in wait – interest rate rises, further QE in Europe and Japan, and whatever happens next in China – could make the next 12-18 months a very choppy ride.
That said, while investors are divided in their approaches, they are united in their view that with so much uncertainty ahead, the safest tactic is to keep moving in a straight line.
Stather-Lodge summarised: “While the erratic, volatile behaviour of the ‘dog’ might be unpalatable and worrying to bystanders, it will eventually calm down and return to the side of the ‘walker’.”
