The UK market may well be on a roll right now with the FTSE 100 hitting a new all-time high last month, but Standard Life Investments’ Bambos Hambi is looking east to boost returns.
In broad asset allocation terms, the group’s head of fund-of-funds management is overweight growth and underweight defensive assets. His positioning reflects his confidence that the present economic rebound is unlikely to be derailed.
“We believe the global economic recovery is sustainable, chiefly on the back of better consumer spending, business activity and lower energy costs,” he says.
In regards to his equity exposure, the fund manager has been making a number of adjustments mainly as a result of the actions of policymakers. Last year, he went overweight Europe for the very first time since he started at SLI and recently topped up that allocation. He has also boosted his exposure to Japan.
Hambi says: “We increased our exposure to Japanese and European equities as both are being supported by central banks. The respective quantitative easing programmes will cause the currencies to depreciate which in turn will benefit exporter earnings growth.
“Europe has been under-owned for some time now. Provided the Greece situation can be sorted out, we foresee a lot of inflows coming in.”
Hambi’s MyFolio range, a 25-strong suite of risk-targeted funds, marks its fifth anniversary later this year. After starting from scratch the most recent group annual results show his portfolios now account for £5.9bn in assets.
Hambi has recently moved assets from the US and UK to Japan and Europe. While he remains overweight the US – albeit to a lesser extent – his belief that the Federal Reserve will tighten monetary policy later this year has forced his hand, as he fears a rise in interest rates will continue to exacerbate the pressure already on the dollar.
“A strong dollar could be a hindrance especially for exporters. However US valuations also look very rich,” he adds.
Hambi’s view on the greenback ties in with his take on developing economies as “a strong dollar is not good for emerging markets”. But he adds that the depressed oil price has firmly divided the region.
“In global emerging markets there are winners and losers right now – the losers are commodity exporters like Brazil, Venezuela and Russia while the winners include India, Turkey and a lot of Asia.”
From a UK perspective, the political uncertainty engulfing the upcoming general election is part of the reason for scaling back his UK exposure.
“There is a concern that there could be a hung parliament or if the Conservatives win, there is then the prospect of a referendum on Europe.” Hambi says.
“In addition, 25 per cent of the FTSE 100 is exposed to energy and material stocks, which is obviously a drag with the oil price right now. In addition, sterling has also been trading a high against the euro and again that is another headwind for earnings.”
However, despite the average IA listed Property fund enjoying a 15 per cent rise over the past year – and a 32 per cent hike over the last three – Hambi believes there is more to come from British bricks and mortar.
He says: “There are attractive yields on offer and the economic backdrop is still favourable. It is an attractive asset class for the next two to three years.”
His views on fixed income, in line with many of his peers, are considerably less bullish.
“We are underweight index linked gilts. There is little to no value there. We have a little exposure to global high yield but it is hedged back into sterling to avoid the currency risk.”
While Hambi was previously overweight European High Yield, he has moved this position to the US “where there is now more value on offer”.
But while he is currently not overly enamoured with emerging market equities, he has a small overweight to local emerging market debt.
“We prefer it on a risk-return basis versus developing market equities.”