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Asset allocation: ECB fiscal stimulus proves timely for PSigma’s Becket

Psigma says falling valuations in the eurozone have presented it with an opportunity as investors shy away from the region’s assets.

As a contrarian investor, Psigma chief investment officer Tom Becket (pictured) says European and Japanese stocks are offering intriguing possibilities as valuations are currently so cheap.

Market volatility has meant greater rebalancing in his multi-asset portfolios in the wake of fluctuating prices. Changes have included a reduction in equity exposure.

“We have had to work very hard and be incredibly busy over the last couple of months,” Becket says.

“We realised we were running with too much equity risk towards the end of July and we have started to become more cautious on developed market equities. We are still quite positive on emerging markets and valuations still look comparatively good, and we did not feel there was a need to de-risk there.”

Although he remains optimistic about European growth prospects, Becket says Psigma has recently reduced its European allocation, although it remains overweight in the sector.

“We have also cut back our European allocations to a marginal overweight. I wish now that we had been more aggressive with that but we were not, we took developed world equities underweight for the first time in six years,” he says.

As well as Europe he is also enthusiastic about emerging market stocks, particularly those in Asia.

Becket says: “We are really positive on emerging markets on a five-year view although the short-term prospects are a bit of a mystery.

“We have been really encouraged by valuations in China and we really like India.

“We are overweight in Asia but are more sceptical on Russia and Brazil.

“There is much better risk reward in Asia than elsewhere in the emerging market world.”

For the first time in over two years, Becket says UK equities are beginning to look more attractive as recent underperformance in FTSE companies has pushed prices down.

“We have previously been quite cautious on the UK and the strength of sterling,” he says. “The ability of UK companies to generate profits overseas has been hampered by that and mid-cap equities are looking overvalued. We are now a bit more optimistic on the UK side because we have seen drops in the price of UK stocks following a period of underperformance.”

Becket adds: “Energy and healthcare sectors are looking like good buy opportunities and I think it is the first time for a couple of years that UK stocks are looking good value and have a decent recovery potential.”

Good performance by mainstream assets in the US means Becket’s contrarian style has suffered of late but he remains confident in the recovery of laggard performance in Asia and Europe.

“The last few months haven’t been a great time to be a contrarian investor and markets such as Europe and Japan will start to outperform. I would expect Europe and Japan to outperform in comparison to the US. That is our style and valuations suggest our position of being cautious on US and heavy on Europe and Japan appears to be correct. Japanese financials at the moment are insanely cheap, which is what we are looking to take advantage of.”

The latest announcement by European Central Bank president Mario Draghi that the ECB is to buy back asset-backed securities in the eurozone has proved a timely boost for Becket and Psigma.

Becket says: “European asset-backed securities has probably been our best position this year. We created a segregated mandate with 24 Asset Management investing in that sector and we think the prices are still too cheap.”

Having bought into the sector when it was cheap, ECB monetary stimulus has proved to be a winner.

“The great thing is Draghi has said the ECB will buy the whole market and it is not discriminating on price. We bought them at good value and are selling them at an insanely expensive price, so Draghi has done us a great favour in that respect.”




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