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JP Morgan's Sheikh: what the last six weeks have taught income investors
by Sarah Miloudi on Aug 14, 2013 at 09:37
JP Morgan’s Talib Sheikh has said the past six weeks have taught income investors an important lesson.
With the Federal Reserve signalling an end to tapering and developing economies appearing to have turned a corner, Sheikh has repositioned hisMulti-Asset Income fund away from high yield and taken a bigger bet on European equities.
He has cut high yield exposure from 45% to about 25% of his fund, with the yield on equities now much more attractive.
He told Wealth Manager: ‘We would argue that the global economy is healing and we want to be closer to an asset class that is less sensitive to interest rates.’
Backing utilities and financials
Following its repositioning, Sheikh’s £234 million fund is now overweight European equities – a move the manager said was driven by the need for diversification, compelling valuations on the continent and a much healthier macroeconomic backdrop.
While Sheikh (pictured) admitted that he could be wrong, given the many twists and turns that Europe’s recovery endured in 2012 and the 20% probability he fears of growth not coming through in the next quarter from the US, he believed payouts from European shares were well-insulated.
‘It’s only a few cycles ago that we saw Italian yields, for example, at 7%. But I think [Mario] Draghi has helped a great deal and that is good for the global economy,’ he said.
While company reports covering the first six months of the year were gloomy, with a raft of firms admitting to investors they had been hit by China’s rebalancing, the slowing emerging markets and the impact of gyrating currencies, Sheikh argued that concerns about shaky fundamentals were unwarranted in these sectors, where corporates had ‘decent dividend cover and the prospect of growing earnings’.
EM versus DM
Elsewhere, Sheikh’s take on Europe is in stark contrast to his views on emerging markets, where at 1.5 times price to book, equities have sunk into a territory where they have historically been considered cheap.
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