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Asset allocation: Premier’s Robbins sees a stronger Europe

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It’s an interesting time to be investing in a global fund in these times of significant market changes, but not all global fund managers got it right in recent times.

“A big mistake for global funds last year was to buy into the European recovery. The ECB was not supportive at that time and the market was expensive,” says Premier Asset Management senior investment manager Jake Robbins.

Robbins, who has been managing the £89.5m Premier Global Alpha Growth fund since 2011 – three years after its launch – has been in a global fund manager since his previous role at Investec Asset Management where he ran the Investec Global Dynamic fund.

Many of his peers were anticipating a strong European recovery but Robbins preferred to be overweight US instead of Europe.

“I was sceptical on the European recovery but than growth came through and the US equity market got more expensive,” he says.

According to Robbins, 2015 will see a reverse situation in Europe where now the market is benefitting from the help coming from the QE programme as well as the fall in the oil price.
As a result, he made a Europe/US switch at the end of last year, going from 5 per cent overweight the US to 5 per cent underweight, while in Europe he flipped from an 8 per cent underweight to being 6 per cent overweight.

“We like two types of stocks in Europe: high yields and equities, which do very well, as well as companies with an interesting investment base,” he says.

Among these companies he looks into the paper and packaging industry, which is going through a consolidation phase, he says.

Though the US equity market looks less attractive because of valuations, Robbins’ portfolio is still highly invested in US equities, making 46.6 per cent of the total fund’s allocation.

He still values US financials as looking “cheaper”, while a rate hike from the Federal Reserve is looming. He’s predicting a rate hike in the second half of the year, likely around September, but is not totally convinvced and thinks that that it could be delayed further.

Robbins doesn’t run a concentrated portfolio and has strict limits on the amount each stock can form of the portfolio. The Premier Global Alpha Growth fund is invested in 60 stocks, none of which are greater than a 2.3 per cent holding and are all very diversified in size, industries and geographies.

“The aim is to generate capital growth over time investing in companies with a combination of quality value and growth,” Robbins says.

For example, healthcare is a big growth area for Robbins, mostly in the US, including big biotech and health insurance companies such as United Health Group, which is 2.2 per cent, as well as CVS Health Corporation, at 2 per cent, and Stryker Corporation at 2.1 per cent.

Robbins has also increased his attention on Japan, believing in the cultural change many businesses are making as a result of President Shinzu Abe’s corporate reforms.

The fund has been overweight Japan since QE in 2012, and now he has increased this to a 6 per cent overweight.

“Big companies in Japan are currently doing share buybacks and it is something you’ve never seen in the past. Japan was a country in deflation and if inflation starts going up, margins will improve as well.”

At the moment the fund is 11.7 per cent invested in Japanese equities, going up from a 10 per cent allocation at the end of February.

Elsewhere in Asia, Robbins is also around 10 per cent overweight China, as the team has always valued the region. Despite the fact that China was cheaper two or three years ago and saw slow growth, valuations still look attractive, says Robbins, with the government also deregulating the financial industry.

One stock he does like in China is China Railway Construction, which he has a 2.3 per cent allocation to.

“China is the second largest country in the world and will be the first in 20 years so in a global fund you need exposure to that,” he says.

Surprisingly, Robbins only has 1.8 per cent in UK equities as the market is “relatively small” on a global basis, which means he is “less interested” in increasing the allocation further.

There are also headwinds to the UK market, Robbins says, with the looming EU referendum likely to cause disruption, although he says it is too soon to make predictions.

“The EU referendum will affect global businesses, but any effects will come in the next couple of years,” he says.

“Globally we are seeing an interesting market correction with bond yields trading negatively, as well as other main events like the oil price fall. It feels this correction was due as the markets grew too fast but fundamentals will not change much.”

In the longer term, when central banks start to tighten policy, Robbins expects more “severe changes” to come. “Volatility will pick up but nothing is looking severe now.”

Across the short term, he sees Greece probably going into default, as the country “can’t carry on” like it is.

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