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View the article online at http://citywire.co.uk/wealth-manager/article/a752199

PSigma’s Becket on a return to EM value and why you’ve got Japan all wrong

by Elsa Buchanan on May 23, 2014 at 11:37

‘We think people are missing the point in regards to Japanese equities, because they are focusing far too much on the currency while missing the point that Japanese companies are in a fundamentally sound position where earnings potential is very high, particularly as the economy continues to recover.’

Profits were further bolstered by segregated mandates run for PSigma, including the City Financial high yield opportunities fund and TwentyFour Asset Management’s European corporate credit and an asset-backed income fund.

City Financial’s mandate invests in stressed and distressed European credit markets, where Becket sees a ‘one-off opportunity’ to exploit the European Central Bank’s asset quality review, which is expected to force European financial institutions to clean up their balance sheets.

The TwentyFour fund focusing on targeted duration European corporate credit with a fixed life, ending in 2017, has an attractive 6.3% yield. Meanwhile, the TwentyFour asset-backed Income fund is up 27% since inception in January last year.

‘Those types of credit are trading with a high recovery potential that we think should normalise in an improved European economic environment. I can quite easily see 10% annual returns from that fund.’

Performance was also bolstered by the US Select High Yield fund, which sits in the portfolio’s higher corporate credit allocation, and invests in US small cap high yield debt delivering a 8% yield.

‘It’s a niche market, but it operates in the sorts of markets the other big funds like Invesco Perpetual just can’t operate in because the bonds are too small.’

In alternatives, Becket stresses the recovery potential of mining, energy and gold companies. ‘They are now focusing on shareholder returns and strong balance sheets, while paying income back to unit holders.’

Over the last year, this exposure hasn’t been helpful, with energy shares in the Investec Enhanced Resources fund particularly dampening.

The balanced portfolio currently has high cash levels, in a more defensive and opportunistic approach.

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