The manager of the Neptune Global Equity fund said leading indicators point towards an acceleration in growth over the next six months. Consequently, Geffen has maintained a cyclical bias with a focus on the US and the ‘superior growth potential’ of emerging markets.
‘Reflecting our conviction in the economic recovery, we have continued to add to our US exposure, which is currently at its highest historic level,’ said Geffen.
‘In addition to gaining access to the US recovery – which we believe will be borne out in the Q4 corporate earnings seasons – we have also sought high quality global companies with growing market share in emerging economies.’
To play this theme, Geffen has bought consumer stocks that he believes have strong balance sheets, dominant market share and resilience against margin pressures.
‘We also favour more cyclical names in the consumer discretionary and energy sectors, including Halliburton – our top performer in the third quarter,’ he added.
In terms of emerging markets, Geffin said they are cheap relative to developed markets as well as to their long-term averages. China, for instance, is trading on a P/E multiple of 11 times versus its peak of 30.
‘Relative to their contribution to global growth, we believe these valuations are unjustified and we fully expect to see the emerging markets re-rate – particularly China and Russia, two of our long-held overweights,’ said Geffen.
‘We have therefore maintained our emerging markets bias, topping up favoured stocks on temporary market weakness and entering new holdings at attractive valuation points.’
He added the majority of his developed market holdings offer significant exposure to these economies through their sales and revenue.
In contrast, the fund is significantly underweight Europe, in the view there is little room for growth due to austerity, among other factors.
Geffen conceded this underweight weighed on third quarter performance, although believes in the long-term, growth will be limited by economic policies.
‘Our limited exposure to Europe therefore remains focused on high quality materials stocks benefiting from major structural change in agribusiness and consumer discretionary stocks tapping into emerging market consumption,’ said Geffen.
The manager has also decreased his weighting to financials, locking in profits in Standard Chartered, given it was the strongest performing sector in the third quarter.
‘We believe that globally banks are not only undercapitalised and will require further rights issues, but face a prolonged period of heavy regulation and uncertainty, said Geffen.
The fund had a 9% position in financials in March, which has been more than halved to 4% versus the sector’s 19% weighting in the MSCI World index.
Over three years, the fund has returned 12.03% compared to a 25.02% rise in the MSCI World index.