On this point, Seven Investment Management also has a commodities strategy in place, via BNP Paribas, which aims to benefit from the slope of the commodities futures price without taking a directional view on commodity prices.
The team also holds an inflation swap, which will make money should US inflation pick up over 2.1%. “The idea there is that the oil price is stabilised. We expect headline inflation to pick up towards 2% – if not beyond – and core inflation to drift up as well,” says Sleep.
Wealth managers have varying views towards using alternatives within high-risk mandates. Husselbee for one, does not use any, bar a small position in a basket of commodities achieved through an exchange-traded fund. This is a position he is looking to increase.
Mahon is more open to alternatives, investing in high-quality infrastructure and property. However, Church House cut exposure to the latter during the period, preferring to focus on specialist areas such as funds focusing on medical-use properties and care homes.
Views also differ on fixed interest, particularly high yield, where there is much debate as to whether or not the strong run we have seen is likely to continue into the second half of the year.
Mahon does not believe investors are being adequately compensated for risk, while Sleep is more optimistic, though with the caveat that fixed interest can be used as a hedge against a lurch downwards in sentiment on the global economy.
“In fixed interest we have some high-yield ETFs, which have done very well for us, and we have US treasuries, which are our insurance policy,” he says. “Treasuries have virtually no yield, but they are what people like to buy when they are worried about the world; the dollar and treasuries are the place where everybody runs to.”
