Citywire printed articles sponsored by:
View the article online at http://citywire.co.uk/wealth-manager/article/a698902
Thurleigh’s Allen: European equities still have legs
by Elsa Buchanan on Aug 27, 2013 at 10:31
Edward Allen, portfolio manager and partner at Thurleigh Investment Managers, is bullish on global equities and particularly European ones, having rotated out of fixed interest earlier this year.
In a medium risk portfolio, Allen has been gradually increasing his allocation to equity funds to 58% over the past 18 months, favouring Europe (8%) through the actively managed Allianz European Equity Growth and Jupiter European funds.
‘We want to buy European companies that are trading at a discount to their US counterparts, but are actually investing very little of their capital in Europe. Their earning streams are global,’ he said.
Anticipating the ‘continued’ rotation of capital out of fixed interest and cash, Allen has turned to mid and small caps in the US and the UK (10% in each), and he is also capturing underlying revenue from emerging markets through the Morgan Stanley Global Brands fund.
‘[The fund] captures a third of its revenues through emerging markets, although none of the equities are listed in those markets,’ he said.
He added that despite concerns about the growth outlook in emerging markets, the derating of the sector means it is now attractively priced, relative to developed market equities.
Allen anticipates a strengthening of the US recovery could see capital inflows into those markets.
After reducing his allocation to emerging markets in June last year, he has rebuilt the position in recent months, buying into falls, and has also upped his weighting to trend-following funds.
‘We have continued to allocate capital to the momentum trade, using Winton’s commodity trading funds, but since we increased our allocation, the performance has been functionally flattish,’ he added.
In fixed income, in which he has a 27% weighting, he holds relatively low duration funds, having sold out of his high yield position in March. ‘Now, the funds that we own are by and large strategic bond funds, most of which have low duration and have proved to be not too volatile,’ he said.
He has defensively upped his cash to 5% from 1% a couple of months ago, and avoided gold and alternative assets.
The medium risk strategy has returned around 10.8% over the last 12 months compared to a 2.8% rise in its benchmark, the Retail Price Index (RPI). Over three years, the strategy has returned 20%, compared to RPI’s 11.2% rise.
Allen anticipates ‘choppy’ markets after a volatile summer, with ‘a relatively small amount of volume moving the markets quite a long way,’ as well as higher volatility in portfolios with fixed income with less flexibility to manage duration risk.
However, overall he remains positive. ‘Although I am concerned fixed income is going to be more volatile, it will hopefully make stable returns over the next 12 months, with equity driving returns on the portfolio over the coming year,’ he said.
He remains upbeat about European equities, alongside the prospects for emerging market equities which, he said, are trading at substantially lower multiples than developed markets.
Buy: European equities
‘They are trading at a discount compared to US equities, and their earning streams are global. It is a good way to dodge any issues in the eurozone’
Sell: High yield bonds
‘They are too volatile’
Hold: Wintons Commodity Trading funds
‘Although they have not performed so well as of late, they are based on momentum and should start giving pleasant returns as soon as markets pick up’
News sponsored by:
Today's top headlines
More about this:
Look up the funds
- Allianz Europe Equity Growth - A - GBP
- Jupiter European Income Acc
- Morgan Stanley Global Brands A GBP Acc