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Caspar Rock on emerging markets, UK gilts and alternatives


Emerging markets

These markets are currently increasing our exposure to emerging market equities. After an extended period of underperformance caused by more structural issues, fears over a hard landing in China and the “taper tantrum”, valuations of emerging market stocks have become increasingly attractive.

As well as trading at historic lows, many emerging market stocks are cheap compared with developed markets on both a price-to-book and price-to-earnings basis. 

The markets are now pricing in more fully the effects of QE tapering and have discounted lower levels of growth, and, despite sentiment being negative, the flow of funds out of the region has slowed sharply in recent weeks.

While there are compelling opportunities to be found, there is evidence of a stark dispersion in valuations, and active stockpicking is key.

UK gilts

At the margin, we are also increasing our exposure to UK government bonds. We have been avoiding the asset class for some time as gilts have been offering negative real (inflation-adjusted) returns.

As yield curves start to normalise, however, we are seeing pockets of relative value. 

Adding to their attraction are the diversification benefits of owning gilts.

As market stress eases, historic correlations are beginning to return, and gilts can now offer greater downside protection to an equity portfolio. While we are increasing our allocation, we remain short duration in our exposure.


A third theme we are pursuing is alternatives, which is an asset class where we have been exploring investment opportunities for many years.

The alternatives universe is large and offers a wide range of opportunities. 

We look for assets whose underlying drivers of return are least like equities or bonds, so as to maximise their potential for diversification while acknowledging that they may
have lower levels of liquidity than more traditional assets.

In the current low interest rate environment we are favouring income-generating asset-backed investments. 

A new position we have recently initiated is in the CVC Credit Partners European Opportunities Fund. This fund invests in European loans, corporate bonds and floating rate notes as well as a selection of securitised products. 

The fund targets annual returns of 8 to 12 per cent alongside a dividend.

Caspar Rock is chief investment officer at Architas



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