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What has Tom Becket bought and sold?

What has Tom Becket bought and sold?

Tom Becket, chief investment officer at , discusses why he is looking to China and his cautious view on corporate credit.

Are you selling out of any active holdings at the moment in favour of exchange-traded funds (ETFs)?

We are selling some of our exposure to defensive emerging market equities at this point from our active fund holding, in the view that the market is polarised between high quality businesses with robust business models, and everything else.

Cyclical names have underperformed, especially those in relation to China, and there is this price weakness because of growing concern over China’s long-term health.

So we are looking to sell some of our defensive equity names and putting this money into the iShares FTSE/Xinhua China 25 ETF.

We like this ETF because it is liquid, it tracks the index we want and it provides us with exposure to behemoth names, such as China Mobile. It is also cheap and offers us this recovery play on China. We want to exploit the rout in the China index and an ETF can give us the upside we want.

What’s your view on China more broadly?

I’m surprised how the market has gone from optimism to pessimism over China. In our view, there will likely be further upswing and recovery in the next few months, which will be nurtured by the new leaders in China.

I’m also more bullish following my trip to China. The country is on the right track but it will be a bumpy ride in the short term. I’d rather invest in China when people are cautious, rather than when people were too bullish.

What about global equities, have you bought any passives in this space?

We recently bought a Legal & General index tracker to provide exposure to developed equity markets in the view they were oversold.

We saw in the short term a resolution to the European problems and the US fiscal cliff, as well as well as signs the industrial cycle is set to improve.

We also see the stage is set for an end-of-year rally, so we thought it was time for some additional exposure to global equities, which we have boosted to 50%.

Are there any other active fund holdings you have sold?

We have sold the Wealthy Nations Bond fund. We are more cautious on corporate credit in general and especially emerging market corporate credit because yields are so skinny and not offering much compensation for the risk being taken.

This sector has rallied a lot this year, with the Wealthy Nations fund up 18%. So the outlook is not as good as it has been.

We originally liked the yield on offer with this fund, at 6.5% to 7%. It was invested in emerging market corporates and we thought we would see a lot of money flow into it, which is has.

It has done well, so now it is time to sell it. If yields go out again, we have no qualms about buying the fund back.

Are there any asset classes in particular where you think ETFs are inefficient?

We use equities with a passive core. There are too many inefficiencies with corporate credit indices or high yield. They don’t allow us to express our individual investment views. So our passive exposure is in the equity and commodities space – these are the asset classes best suited.

What products do you use to tap commodities?

We use the ETFS Physical Gold product. Over the long term, gold goes up a long way, although in the short term, it’s difficult to predict.

I wouldn’t construct a portfolio now without gold, although we will wait for a better opportunity before we take a more aggressive stance.

With the likes of the Bank of Japan and the Federal Reserve showing urges to print more money, it leaves us positive on the gold price, but not gung ho.

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