With differing fortunes in the developing and developed world, is there still room for a truly global equity portfolio? In the first of two analysis pieces, Citywire Global gauges selector sentiment on the Equity – Global sector and learns which leading lights top investors are following.
Helge Rutgersen, Pioner Fonds (Norway)
My conviction on equities has largely been focused on the European market and we have expressed this view through BlackRock funds, namely the European Special Situations and Euro Markets strategies. In addition, we have invested in an ETF which focuses on mid-caps. This has been a key emphasis within our equity investment.
Our performance has been very good in a relative sense but the absolute performance has been hurt by the strength of the Norwegian krone versus the euro. This meant, despite remaining positive on European equities, our review of the sector at the end of May showed that performance was down a little. However, we are sticking to our guns here.
Following the review, we also thought it was time to start looking at Japanese equities because we have become relatively bullish on the country. For the time being we are taking an index position because we are searching a relatively narrow pool of managers and none have met our criteria.
We are choosing to access global equities through dedicated country and regional funds, as we feel broader global equity funds have too much emphasis on the US. Most global equity funds will have around 50% exposure to the US and we are much more negative and feel valuations are too high to justify US equity.
This reinforces our argument for investing in the eurozone and Japan. Another area we have chosen to add to recently is closer to home, as we have taken advantage of market dislocation to add a position in Delphi Nordic, which is focused on the Nordic equity market.
We feel this is a good way to tap the relative strength of the region as the Nordic market has outperformed a number of European equity rivals in the short term. We are keeping this as an additional area of investment, rather than a core theme.
Felix Lopez, ATL Capital (Spain)
Although there are many uncertainties ahead, I firmly believe that the best place to find the most attractive risk-adjusted returns is the equity market. The global inflation environment is at historic lows and low interest rates with expectations of a very gradual rise favour equity investment.
Our two main bets in global equities are Europe and Japan. We maintain a neutral weight in global emerging markets and an underweight position in the US. The first two geographical areas are immersed in a process of quantitative easing, which we believe is a great driver for equities for the months to come.
After a few years of a clear underperformance, we believe that Europe is ready for a cycle of above average returns. The market valuation for European equities is another positive for the asset class as it is below the global average, which provides a greater margin of safety than, for example, the US.
Another key point is future flows in Europe and Japan. Our analysis anticipates strong inflows of money into equities given the lack of alternatives, especially in fixed income markets, as bonds are the most traditional asset class in client portfolios.
Within European equities, we are invested in the Alken European Opportunities, Invesco Pan European Structured and JP Morgan Europe Equity Plus funds, which we have selected for their distinct investment style.
The Alken fund provides good flexibility and conviction, while the Invesco and JP Morgan Europe strategies offer consistency and robustness. As for Japan, the Invesco Japanese Equities fund and the iShares MSCI Japan Currency Hedge are our top picks.
Giuseppe Galloppo, Arianna SIM (Italy)
Our allocation bet within global equities is European financials. We are now overweight banks because they are changing the way they measure assets within their portfolios and this is pushing profitability upwards in Europe.
I don’t think the Greek debt crisis will affect the sector as a whole. It will of course, have an impact on lenders to Greece but there aren’t many among European banks, and it will also hit the European bond market.
However, we are focusing on funds that are showing an awareness of positive banking trends, which does not necessarily mean strategies that have a major exposure to banks. The Pioneer, Eurizon Capital and Franklin Templeton European equities strategies are the ones we are mostly buying into.
As for emerging markets, we only look at Asia, as we don’t see many opportunities in Latin America and elsewhere. We tend to divide the area into three macro regions: Japan, Asia Pacific and India, and we have a different approach for each.
India is the one we are currently leaving out because, despite macro data improving, we are doubtful on fundamentals. The Mirae Indian Opportunities fund portfolio might be the only exception we would consider given the incredible results delivered by Rahul Chadha in the last few years.
Within Asian equities generally, we are invested in other Mirae funds. We continue to like the region overall, and although China has an excessive overweight in the index, there is a de-correlation between economic trends, so the market still offers acceptable returns. We see a particular uptrend in Japan.
Our strategy for the US is different. This market is expensive and the valuations are still high, so we are buying single stocks rather than funds. We like companies that have a financial focus, such as Google and Apple.
Fabio Catalano, AcomeA (Italy)
Even with rising short-term volatility due to the Greek and Russian situation and normalisation of rates in the US, there are still good conditions for equities. Monetary policies remain very accommodative around the world and economic growth is due to accelerate after a pause in the second quarter.
These conditions should lead to a recovery in corporate earnings especially in Europe and Japan where weak currency, quantitative easing and stabilisation of low oil prices, give relative advantage to local firms. Reforms are still necessary to boost future economic growth.
In this environment, we think the next move in the equity index will be due to earnings recovery instead of multiples expansion. We prefer Europe and Japan, because the environment in those regions is more favourable for a sustainable earnings upgrade cycle relative to the US and emerging markets.
In particular we focus on the small and mid-cap universe which is more cyclically sensitive than large caps. In terms of global sectors, we prefer consumer discretionary, information technology and pharmaceuticals.
As for Europe we had a more diversified approach. We have selected Oyster European Selection managed by Mike Clements; Invesco Pan European Structured, run by Michael Fraikin; Investec European Equity, managed by Ken Hsia; Threadneedle European Select, run by Dave Dudding; and UBS European Opportunities Unconstrained, managed by Maximilian Anderl.
In the mid to small-cap universe we favour Vontobel European Mid & Small Cap Equity managed by David Houston; Oddo Avenir Europe, run by Pascal Riegis and Oyster European Mid & Small Cap managed by Claire Manson. We are also using long/short strategies such as Alken Absolute Return Europe managed by Nicolas Walewski.
Meanwhile, in emerging markets arena we are investing in HSBC Asian ex-Japan Smaller Companies overseen by Husan Pai and Fidelity China Focus, run by Jing Ning. From a global sector perspective we prefer Fidelity Technology, run by HyunHo Sohn and Invesco Healthcare, managed by Derek Taner.