According to Jarvis, high eurozone inflation has risen further, prompting the ECB to raise interest rates by 0.25 per cent to 4.25 per cent. “After this move we expect the ECB to hold tight while it monitors forecasted slower activity and the risks of second round effects from global inflation developments” he says.
Jarvis predicts that current high inflation coupled with the credit and property crisis could lead to stagflation and negative real rates globally. “While we believe these are legitimate concerns, at current levels the market has adjusted significantly lower and offers sufficient valuation support” he says.
The fund manager also believes that industrialisation of emerging markets should continue to cushion a developed economy slowdown.
Commenting on investment strategy at the trust’s Q2 interim management statement, Jarvis explains: “We like companies that exhibit pricing power to offset rising input costs and generate cash earnings, irrespective of the economic cycle.”
Within financials, Jarvis has cut exposure to banks, selling Bank of Ireland and increased exposure to insurance buying into Zurich and Allianz. He has also increased exposure to German listed Hypo Real Estate.
Jarvis is bullish on the European oil & gas sector and initiated positions in Petrolia Drilling and Galp in the second quarter.