View more on these topics

Aberdeen’s Graham Duce: My Three Big Calls

Aberdeen Graham Duce

The investment landscape remains delicate and challenging. This reality applies across the board but perhaps most perplexing has been the bond market.

Flexible fixed income

Conventional wisdom coming into 2014 supported the notion of a ‘Great Rotation’ away from bonds and into equities – which simply hasn’t happened. US 10-year Treasury yields are actually lower than they were at the start of the year.

We would make two observations here. Firstly, any rotation away from bonds into equities was always likely to be gradual and was never going to be a one-way street as fixed income remains a critical part of investment portfolios.

Demographics, diversification and the fact that risk modelling tools will continue to recommend large fixed income allocations all mean that bonds will still be an integral part of investor portfolios. After all, as yields rise there will be a number of willing income-hungry and liability-conscious investors looking to take advantage of the higher yields (i.e. there will be buyers and not just a gulf of sellers).

So with this in mind, we feel strongly that a more flexible approach to fixed income investing is required. Almost two years ago now, we shifted towards more dynamic and flexible managers to adapt to this fast-paced landscape. The approach stood us well in 2013 and we expect it will again in 2014.

Our most recent addition to our strategic bond stable is a good example of a dynamic mandate where the managers, Jon Mawby and Stephen Roth, offer a flexible global credit fund managed with an absolute return mind-set. We introduced this fund, GLG Strategic Bond, into a number of our portfolios last summer, since when it has been accretive in absolute and relative terms.

Asia – remains dynamic and robust

A clear trend last year was the divergence in equity performance between Asia (and emerging markets) and Western markets. Despite the cyclical slowdown and increase in political risk, Asia still looks in reasonable shape. Governments have strong finances, consumers are not over-leveraged by Western standards and, more importantly, corporate balance sheets remain healthy and debt levels manageable.

All of that said, there are exceptions – and being selective is as crucial as ever. Schroder Asian Alpha Plus and Prusik Asian Equity Income funds continue to fulfil important roles in our funds.

Japan – regardless of what happens with ‘Abenomics’, it is still home to world-class companies

What a difference a year makes. Twelve months ago markets were abuzz about ‘Abenomics’, the ambitious economic programme of Prime Minister Shinzo Abe to lift Japan out of its deflationary malaise.

However, while the first two ‘arrows’ of fiscal stimulus and monetary policy were successful in combating deflation and weakening the yen, which in turn has helped stocks to climb, the positiveeffects are waning. Pressure is therefore mounting on the third arrow – structural reforms – which lies at the core of Abe’s longer-term growth strategy. 

The jury is very much still out on this one and we have no crystal ball. Yet Japan remains a big economy with the potential to recover, which provides hope. But more than that, Japan is home to many world class companies and the opportunities available for prudent stockpickers.

As always, the marginal buyer of Japanese equities is the foreign investor, and they have been selling as they lose patience with the perceived procrastination of the Bank of Japan.

However, valuations seem reasonable and the earnings outlook remains positive, particularly when the positive effect of a weaker Yen kicks in. Our high conviction holdings in the value orientated GLG Japan CoreAlpha and Morant Wright Nippon Yield funds continue to be effective positions in our portfolios.

Graham Duce is director, multi-asset at Aberdeen Asset Management


Compliance tip

Question: In box two of section D1 of my Gabriel (Gathering Better Regulatory Information Electronically) which relates to regulatory capital, what is the minimum requirement for mortgage and general insurance firms? Answer: For firms which do not hold client money, the minimum requirement is £5,000 or 2.5 per cent of the annual mortgage and insurance […]

Sub-Saharan Africa Near-Term Outlook

By Paul Caruana-Galizia, Neptune Economist

Sub-Saharan Africa’s economic renaissance continues. After growing at an average rate of five per cent over the past decade, the IMF projects an acceleration to 5.5 per cent growth among Sub-Saharan economies in the next two years, as developed economies emerge from the crisis. We expect this growth to be sustainable for three broad reasons.


FCA rejects calls to extend annuity comparison rules

The FCA will not extend finalised guidance for annuity comparison websites to lead generators despite industry calls to do so. It has also rejected a suggestion to describe commission as “non-advised fee” on the annuity websites. The regulator has today published guidance for annuity comparison websites after a review found the websites are misleading and failing […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm