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My four top trades: a spotlight on GLG's new absolute return star
by Robert St George on Oct 14, 2013 at 13:00
James Ind, who joined GLG in the summer to launch an absolute-return fund, has shared with Wealth Manager the four themes presently guiding his portfolio.
James Ind joined GLG from Russell Investments in the summer to assist in the management of its new total return strategy.
Ind spent five years at Russell, where he was managing director and portfolio manager, heading the team responsible for the structuring and management of multi-asset portfolios worth around $6 billion. Prior to this he had eight years with Merrill Lynch and Mercury Asset Management.
Underlying Ind’s approach is a scepticism about the broader absolute-return sector, which he said had attracted him to GLG, a Man Group subsidiary. ‘It’s very difficult to take a long-only asset platform and put it into the absolute-return world,’ Ind explained.As well as drawing on GLG’s macro analysis resources to protect his fund from such risks, with ideas generated from the group’s modelling and its specialist asset teams, Ind professed that valuation considerations ‘infuse’ his approach. His philosophy is premised on mean reversion, a style he does not see being practised by many of his peers. ‘This area of true absolute return is not a crowded space,’ he commented.
The taper risk
Shaping Ind's investment thinking right now is the prospect of quantitative easing drawing to a close.
‘What we saw in May was a dress rehearsal,’ Ind warned. The unexpected announcement that month that the Federal Reserve might start tapering its purchase of bonds wiped 7.9% off the MSCI World index and 8.5% off the average global bond fund within a month. The typical constituent of the IMA Targeted Absolute Return category lost 4.9%.
‘There’s no point in an absolute-return fund that’s correlated to other risks,’ argued Ind. ‘And as sure as night follows day, at some point there is going to be a market correction.’
Theme 1: forward guidance
Ind's investment principles have drawn him towards four themes.
The first is to trust, not second guess, forward guidance. ‘The market is implying faster and higher rate hikes than we think are probable,’ Ind relayed.
While he has taken some profits from positions based on interest rates remaining low in the US, Ind has maintained them in the UK.
He expressed confidence that Mark Carney (pictured) had not been appointed to run the central bank of ‘one of the most interest-rate sensitive economies in the world’ to tighten monetary policy, especially with elections looming in less than two years’ time.
Theme 2: Abenomics
Ind’s second theme concerns Abenomics in Japan. ‘One shouldn’t underestimate its potential,’ he stated. For Ind, there is still scope for Japanese corporate earnings to continue growing thanks to a depreciating yen and cuts to business taxes.
However, rather than making a simple long bet on Japanese equities – ‘I don’t want to be a hostage to risk on/risk off trades’ – Ind has entered a pair trade in the expectation that they will outperform US stocks. With profit margins at US companies already at record highs, Ind doubted that there was much scope for further earnings growth there.
Theme 3: European outperformance
Third, Ind has taken out a similar pair trade on the basis that Europe will outperform the US.
‘The discount in European equities cannot be justified based on relative earnings growth alone,’ Ind contended.
So far this year the MSCI Europe index has lagged the S&P 500, with a gain of 10.9% compared with 16.1% from the US index. The S&P 500 currently trades on a price-to-earnings ratio of 18.1, against the MSCI Europe’s multiple of 15.7.
Theme 4: emerging market currencies
Ind’s final theme is that emerging-market currencies will outperform safe-haven specie, particularly the New Zealand dollar and the Swiss franc, which he has again implemented through a pair trade.
Over the past year, the Indian rupee has weakened by 20% against the New Zealand dollar and by 21% against the Swiss franc. The Brazilian real has deteriorated by 7% against the New Zealand dollar and by 14% against the Swiss franc.