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Gunning for growth: Four ways multi-managers can play risk assets

Justin Onuekwusi, head of retail multi-asset funds at LGIM

We are overweight equities. There are a few key things that drive the performance of equities: economic growth, which is clearly positive given we are in a recovery phase; monetary policy, where we have seen a significant level of fiscal policy; and valuations, where arguably some areas of the market look a little expensive. However, when you look at equities relative to other assets, in particular bonds, the gap really is quite significant.

The final area that we think really drives equities and growth assets is whether there are any systemic risks on the horizon. We think there are a lot of risks that are reasonably priced into markets. 

There is one risk – the China/US trade risk – which is not priced in, but overall we are overweight equities. 

It is not a blanket overweight – we have a barbell approach.

We have exposure to some higher growth areas such as technology, although we are worried about concentration risk in this area so try to take a diversified approach. 

Then, on the other side, we like some value areas such as travel and leisure, small caps and Japan; particularly Japanese railways, which are geared towards the reopening of the economy. 

Gunning for growth: Four ways multi-managers can play risk assets

 

Suzanne Hutchins, investment manager at Newton Investment Management

We do feel that global equities offer the best opportunities for growth. It always worries me when there is commonality of view, because it can end up being wrong. But in any case, the liquidity backdrop is very supportive for risk assets, as is central bank support in terms of accommodative policy, although there has been lot of talk around tapering and potential interest rate hikes.

Within the equity sphere, we think about long-term structural trends when constructing portfolios. 

The importance of sustainability is a trend that is here to stay and there are massive opportunities around this, whether that is net zero, electrification, or businesses in transition. 

I also think investors need a balance between those long-term structural growth trends and the shorter-term stories. We are positive on reopening trades, and regionally we like Japan relative to other markets. It looks good value and has obviously been beaten up by Covid. Now it is reopening, there are a lot of very big exporters in Japan that look attractive at the moment. 

 

James Ashley, head of international market strategy at Goldman Sachs

We currently like all different flavours of equities – I agree that risk assets are the place to be. It is also worth emphasising that equities are attractively valued relative to what else is out there, as well as in relation to the growth and policy environment.

You have to be realistic about the upside in terms of these valuations, but we still think equities will outperform bonds.

I agree that Japan looks attractive, but if I were to zoom in on one particular area of the equities market that we are interested in, it would be emerging Asia.

China’s GDP has increased from 7% globally in the year 2000, to almost 20% today. GDP is not synonymous with investments, and we know that the investment weights across key benchmarks which previously lagged this figure have begun to increase quite substantially.

The story is also emerging markets and not just China specifically. China continues to be the 100-pound gorilla in the room, but at the same time you can see economies like India joining this trend as well. If you zoom in on these vibrant growth stories, which I think will feed into investment opportunities, there are a number of sectors set to benefit. There are a number of challenges on the horizon and factors that could inject significant volatility – it will not be a smooth ride – but I think that is likely true for most asset classes, emerging market or otherwise. 

 

Gunning for growth: Four ways multi-managers can play risk assets

Katie Trowsdale, head of multi-manager strategies at Aberdeen Standard Investments 

We are also positive on equities, but in particular UK equities. After undergoing a long period of uncertainty following the Brexit vote in 2016, investors have understandably chosen to invest elsewhere. However, we believe now there is more certainty and, coupled with attractive valuations relative to other markets, as well as strong dividends, the UK market looks really compelling.

These characteristics, as well as cheap financing, a favourable regulatory backdrop and M&A activity, also make the UK look attractive. It has been the third-largest market globally for takeovers this year, following the US and China, which means M&A is the best it has been for the UK since 2015, with around $230bn worth of deals completed already.

Within the UK market, we prefer companies further down the cap spectrum, which are benefitting from increased Brexit certainty and domestic tailwinds.

We do adopt a balanced approach and also hold some value companies as well. 

We are generally positive on small caps. 

 

 

 

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