Mixed asset star turns bullish on equities

Mixed asset specialist Scott Wolle (pictured) has moved to an overweight position in equities in his $3 billion fund as he thinks the asset class is becoming attractive over the long term.

The Citywire A-rated manager, who runs the Invesco Balanced Risk Allocation fund, said 40% of the multi-asset strategy is now positioned towards equities, compared to his previous neutral position of 30%.

In the strategic allocation of the fund, Wolle uses a 150% allocation framework, which is made up of 90% bonds, 30% on equities and 30% on the commodities market. This gross exposure is achieved through some derivatives used for hedging.

‘In all the equity markets we follow, we are finding them all to be attractive at the moment and when we look at where they should be over the longer term,’ he said.-

In the fund, Wolle and his team follow the US large and small cap indices, the Eurostoxx, the FTSE, the Topix and use the Hang Seng as a measure for Asia.

‘In relation to all these markets, we have an overweight position. We are really now quite bullish on equities because we look at the world in terms of likely return compared to cash. This overweight doesn’t mean we have to be underweight anywhere else and can be a big positive contributor.’

‘We are really looking at this in comparison to what the risk of recession is and that is a bit higher in central Europe than in other places, of course, but that is being priced in and will not serve as a headwind to equities.’

Headline risk

Wolle, who previously warned against a catch-all approach to commodities investing, said a similar phenomenon could be occurring when it comes to equities as investors are concerned about headline issues such as the Fiscal Cliff debate in the US.

‘One of the real issues we have tried to get around is focusing on single items and allowing that to dictate allocation. With the Fiscal Cliff, it is easy to be concerned about it and as an American citizen, of course, I am concerned, but you shouldn’t just focus there.’

Elsewhere in his portfolio, Wolle said he had reduced his sovereign bond exposure and had done this due to falling yields. This has now gone down to 75% of the overall exposure.

This, Wolle said, had been a catalyst in adding to the equity holdings, as the falling yields signaled an opportunity to add some risk back into the portfolio.

The Invesco Balanced Risk Allocation fund has returned 39.75% over the past three years. This compares to its Citywire benchmark, the LCI Mixed Asset EUR Bal – Global, which rose 29.05% over the same period.