Wealth Manager - the site for professional investment managers

Register to get unlimited access to Citywire’s fund manager database. Registration is free and only takes a minute.

Investment Committee: Haig Bathgate, Tcam

Investment Committee: Haig Bathgate, Tcam

 Tcam's joint chief executive and CIO talks encouraging fundamentals and making Europe attractive.

It has been a fashionable 12 months for geo-politics. From ‘Brexit’ to ‘Frexit’ and ‘IndyRef’ to ‘Trumpnomics’, the terminology has become part of the everyday lexicon, spurring a wealth of headlines more arresting than news of improving PMIs.

Against this backdrop, our recent asset allocation meetings have been decidedly unfashionable, with discussion focusing on the trajectory of fundamental data as opposed to any probabilities of a Trump impeachment. Of course, that is not to say that politics are not important – short-term style shifts driven by last year’s events created a very tricky environment for many active managers.

However, it is improvements in data points such as wage growth and risks such as duration and inflation that are driving our longer-term asset allocation decisions.

Encouraging fundamentals are a key reason why we like Europe at present. It was feared that Trump’s victory would herald a new dawn for populism in the region, particularly with the major economic players heading to the polls during the succeeding 12 months.

However, Marine Le Pen’s defeat in France and a boost for chancellor Angela Merkel in North Rhine-Westphalia dictate that the European story is now centred around the data, rather than any further break-up of the Union.

Unlike the UK, latest GDP figures impressed, while unemployment continues its progress towards non-accelerating inflation rate of unemployment. Underemployment – a key factor for wage growth – is also retreating from 2015 highs. In combination, the figures make it increasingly difficult for Mario Draghi to insist the European Central Bank maintain its ultra-accommodative monetary policy.

Accordingly, our exposures focus on those areas that are best placed to benefit from any increase in interest rates, as well as improving data. Financials in particular offer attractive valuations.

We won’t find out until 8 June whether Draghi has begun to change his stance on policy normalisation, but whether rate hikes should come sooner or later, duration is a key risk at present. With tightening continuing in the US, we have minimised exposure to long duration equities and remain particularly cautious on the bond market.

In a lower-growth world, where the thirst for income has seen yields bid to near-historic lows, the effects of sustained policy normalisation are potentially severe. Fed chair Janet Yellen may be more measured than former Fed chair Alan Greenspan (a string of rate increases during the latter’s tenure shocked the bond market in 1993/94), but her cautious approach could ultimately prove her undoing if the data confirms the Fed is behind the curve.

We have moved away from conventional and index-linked bonds in favour of other areas of the market that look more attractive, including European financial debt and direct securitised lending.

As fundamentals return to focus, we also consider alternatives to be a key asset allocation call. While style shifts driven by the macro events of 2016 created a tricky environment for many of these managers, we believe the asset class remains attractive in the longer term.

Investments in many geographies and sectors look expensive and hence, portfolio diversifiers such as long/short equity and derivative structures provide useful protection against a pick-up in volatility.  

If you would like to share your asset allocation insights in the next Investment Committee panel, email Suzie on sbliss@citywire.co.uk

Leave a comment!

Please sign in or register to comment. It is free to register and only takes a minute or two.
Citywire TV
CIO Tapes 2: two warnings and a lot of optimism

CIO Tapes 2: two warnings and a lot of optimism

Our group of leading asset management CIOs see a lot of opportunities – and overseas investors are buying UK too

Play Wealth Manager Retreat 2017: size isn't everything

Wealth Manager Retreat 2017: size isn't everything

We asked our delegates at the Wealth Manager Retreat what they think about the recent wave of consolidation in the industry.

1 Comment Play CIO Tapes - part 3: 'passive funds are anti-capitalist'

CIO Tapes - part 3: 'passive funds are anti-capitalist'

Citywire recently gathered three of the UK's leading fund investment heads to discuss their hopes, fears and the issues that their jobs throw at them daily.

Read More
Your Business: Cover Star Club

Profile: Kleinwort Hambros' boss on how to manage five banks

Profile: Kleinwort Hambros' boss on how to manage five banks

Welding together Kleinwort and Hambros – two of Britain’s most historic banks, founded in 1786 and 1839 respectively – was always going to be a challenge.

Wealth Manager on Twitter