Putting more than half its ex-UK equity allocation into Asia and emerging markets was European Wealth’s most effective asset allocation change in the past year. Richard Stammers, investment strategist at the London-based firm, said growth in those regions was even larger than the team had expected.
Polar Capital Global Technology and Threadneedle European Smaller Companies are two funds that have done well for European Wealth. ‘The former was in the right space among the market’s focus on technology,’ said Stammers. ‘The latter is a fund we’ve held for many years, and it benefited from the recovery in Europe over the past year.’
The firm has also reduced its European equity positions in the past six-to-12 months. It used the proceeds to build positions in Japan, due to the country’s successful economic reforms and continued economic growth.
‘We still feel Europe is propped up by asset purchases, which is concealing underlying problems,’ said Stammers. ‘We also recently changed our style of allocations in Europe and Asia. In Europe, we replaced our growth fund with a value fund. In Asia, we brought in a fund with an income objective and little exposure to big technology companies, which we often felt had stretched valuations.’
European Wealth’s overall attitude to markets is also changing. ‘We’re late cycle now,’ said Stammers. ‘The risks for many assets have increased and the prospective returns are likely to be lower. So we’re monitoring our risk assets carefully. Any further sustained upward moves would probably mean we take some profits and de-risk slightly.’
The firm uses passive funds for systemic exposure. But it currently prefers active funds as stock selection is important in this environment, said Stammers.
Asset allocations are decided by the firm’s investment management committee. This comprises the most senior and experienced members of its investment team.
‘Our allocations are the result of a tactical overlay applied to our own core strategic asset allocations,’ said Stammers.
Portfolios are usually rebalanced on a quarterly basis. But the team monitors positions routinely and sudden large asset class moves could trigger portfolio changes.
Stammers said the firm intends to improve the data and analysis available to the committee. It also wants to find the best people to contribute to its discussions. ‘We’re considering working more closely with external specialists to ensure our thinking doesn’t get complacent,’ he said.