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Standard Life Investments GARS fund
The (SLI GARS) team remains bullish on US and Chinese equities but believes Canada and Australia are facing serious headwinds.
At the same time, the team headed up by (pictured) has removed its Russian equity long exposure over frustrations with the lack of progress made to reduce corruption and improve business transparency in the country.
Chinese equity to perform better
SLI absolute return investment specialist Andy Ford said the team were expecting Chinese equities to outperform the region in the remainder of the year, with valuations across many Chinese sectors at historically cheap levels.
He said the recent issues with overcapacity in the Chinese economy should soon ease as the government focused on reducing excess capacity across many sectors before the end of September.
He said: ‘[Chinese] valuations are pretty attractive given the 8-10% nominal growth which we are likely to see.'
‘It is good that [overcapacity] has been flagged up as an area of concern. If we do see capacity coming out of sectors suffering chronic overcapacity, it should make the companies that are left much more profitable and go some way to addressing the disconnect between earnings growth and stock price performance.'
The fund, which runs a total of more than £30 billion in assets, endured volatile performance over the last quarter after risk assets sold off on Fed chairman Bernanke's tapering speech.
The fund was down 60 basis points over the second quarter, although in June it was off 2.2% while it gained 1% in July.
Ford admitted: ‘The pullback was the third biggest drawdown we have had.’
Key detractors were positions in high yield credit, global listed real estate and Chinese equity which all sold off after Bernanke’s comments on tapering at the end of May.
US dollar bulls
The best performing strategy in June was a long on the US dollar versus a short on the Canadian dollar and although this dragged on performance in July, Ford said the team were happy to maintain the strategy for the long term.
‘There are various issues in Canada involving a bubble in the housing market and a lot of bad debts yet to be recognised in the banking sector.'
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