Careful stock-picking required
Monetary stimulus around the world is a contributing factor in our current asset allocation and investment strategy. We have been taking money out of the US, which is the most expensive of the major regions and where earnings and share price momentum has started to deteriorate versus other parts of the world. It appears that QE has done its work by helping the US economy on to a surer footing and our view is that a lot of equity upside from that is reflected in current valuations.
However, we see opportunities to benefit from ongoing monetary and economic stimulus in other regions. We have been putting some of the proceeds of our reduced US exposure into Europe, Japan and to some extent Asia Pacific – markets in which we are modestly overweight and where we feel there are equity gains to be had as a result of QE and other stimulus policies.
We are underweight the UK but following the General Election result, we have added to domestically-facing UK cyclical stocks, such as house builders and financials. We think these will benefit from the positive effect of the Conservative majority on consumer and business confidence.
Our investment philosophy is such that we are always looking for long-term positions. At stock level that often means businesses in a niche or specialist area, with unique or differentiated products and services which give them strong competitive advantages and market share. We’ve found some interesting opportunities on these lines in the UK engineering sector lately, which we are currently weighing up.
Elsewhere, we have been increasing our underweight in fixed income on concerns about flows from the bond market in anticipation of interest rates rising. We’re not expecting an all-out panic, but if investors start to see sustained losses in the bond part of their portfolio – supposedly a ‘lower risk’ asset class – then selling momentum could build.
Rosie Bullard Portfolio Manager, James Hambro & Partners
You should not act on this content without taking professional advice. Opinions and views expressed are personal and subject to change. No representation or warranty, express or implied, is made of given by or on behalf of the Firm or its partners or any other person as to the accuracy, completeness or fairness of the information or opinions contained in this document, and no responsibility or liability is accepted for any such information or opinions.
The value of an investment and the income from it can go down as well as up and investors may not get back the amount invested. This may be partly the result of exchange rate fluctuations in investments which have an exposure to foreign currencies. Fluctuations in interest rates may affect the value of your investment. The levels of taxations and tax reliefs depend on individual circumstances and may change. You should be aware that past performance is no guarantee of future performance.