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Schroders £2.3bn multi-asset man drops equity protection play
by Matthew Goodburn on Oct 25, 2013 at 12:28
'We have been buying large companies like BP and adding to materials while reducing more defensive sectors like consumer staples. We have avoided utilities for some time but have started to build some European utility positions. We still like health care and pharma in the developed world.'
But he believes the increased popularity of European equities needs monitoring closely. 'Once a trade becomes consensual it should raise questions for us.'
But, Forest believes being overweight European equities has now become the consensus call within equities and he expects the on-going recapitalisation of banks to generate further bouts of volatility.
'Many central banks are not lending as much as they were and if it has become consensus that growth is crucial [to a sustainable recovery] then there will be heightened volatility around the macro activity.'
Upping EM exposure
Forest recently increased the fund's exposure to emerging market equity, anticipating a short term bounce in EM markets led by better growth numbers from China.
'We were more exposed to emerging markets in May but cut back exposure due to the growth scare and a depreciation of currency. We increased exposure again in August which was mainly due to valuations starting to look interesting again.'
Around 19% of the fund is in US high yield bonds, a further 10% in European investment grade bonds and 4.2% in European high yield. The fund currently has 7.2% of its assets in EM local currency debt and around 3% of the fund is in US denominated EM debt.
'It will be generally favourable for the asset class if the current monetary policy continues. While inflation expectations remain low investors are dropping their bonds and we think credit has become more dangerous.'
The fund has around 2.4% of its assets in listed property but Forest says he will not buy more at the moment because many are on a premium to NAV.
'REITs look fair value but there is not too much value there and they will be the most vulnerable to a rate rise,’ he said.
The fund is yielding 5.4% and has posted a return of 10.9% from launch on 18 April 2012 to the end of September 2013.
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