The Aggressive index offers Adviser Fund Index panellists the greatest opportunity to express their sentiment towards global markets.
Overall changes to the portfolio in the May rebalancing were relatively modest, considering concern over the global recovery. For some, the general gloom was a sign to stick by their convictions. “I was pretty happy with where we were going into the May rebalancing,” says Sam Owen, a portfolio manager at Beckett Financial Services. “I did not alter our European exposure as we get it through the Neptune European opportunities fund where we have confidence in the manager’s ability to outperform.”
The Neptune fund, managed by Rob Burnett, is up by 4.55 per cent in sterling terms over three years against an average loss of 4.72 per cent in the IMA Europe excluding UK sector.
Juliet Schooling, head of research at Chelsea Financial Services, says the poor outlook for Europe betrays a more general trend of scepticism towards the continent. “We did not change anything on Europe last time,” she says. “It tends to be an unloved area but I think the gloom tends to be overplayed as there are still opportunities.”
Panellists may not have abandoned the region wholesale but some of this can be explained through the perceived need for currency diversification in a portfolio as much as a bullish forecast for European equity markets. Concerns over the possible impact of further quantitative easing in America have reignited exchange rate fears.
Last week, the dollar dropped to yen 80.41, its lowest point since April 1995. The shift appears to suggest growing market conviction that QE2 will prove a major drag on the dollar.
“Currency does worry me but we have got a reasonably well rounded portfolio in terms of diversification so we have tried to avoid over-exposure to a single currency,” says Schooling. “You have some managers fleeing the dollar while others appear to be buying into it, which is a sure sign there is confusion in the market.”
One of the repercussions is the appeal of global funds has been highlighted. Schooling says she usually tries to avoid these types of products as it can be difficult to reflect sentiment towards particular regions but the diversification benefit of exposure to different markets and currencies has increased their perceived value.
However, volatility can also produce opportunity and Owen says she has been identifying ways to reflect currency views within her more aggressive portfolios.
“There are currency strategies that we would like to play in the more aggressive mandates,” she says. “These would include looking at the appreciation of emerging market currencies.”
Those who believed the past six months would help paint a clearer picture for the direction of markets will have been disappointed.
Perhaps a sensible philosophy to adopt is one suggested by Mark Harris, head of multi-manager at Henderson.”Your job as an investor is to find areas where you can gain clarity and back it,” he says. “Where you cannot achieve it perhaps the best thing to do is just leave it alone.”
The AFI index is run in conjunction with Financial Express