Hawksmoor Investment Management has found that equity and corporate bond managers are mainly bullish on markets but those who take a top-down approach expect there will be hard times ahead.
The multi-manager firm says many fund managers are more confident about the outlook for their funds than they were during the strong rally of the past two years but that markets are caught between positive and negative factors.
On the positive side, the corporate sector recovery is continuing, with company profits rebounding and defaults on corporate bonds at a minimum. Negative factors facing markets are inflationary pressures, problems in the Middle East and problems facing developed economies in reducing debts.
Hawksmoor is positioning its Vanguard fund for this environment by balancing holdings that will benefit from the positives while keeping an eye on the risks if interest rates rise and economic growth slows.
It recently introduced a holding in M&G’s UK inflation-linked corporate bond fund, managed by M&G head of retail fixed interest Jim Leaviss and fund manager Ben Lord. This combines some of the attractions of index-linked gilts with the potential for higher returns by taking on the higher risk of corporate bonds. Hawksmoor says it should also avoid losses at times of rising interest rates.
Chief investment officer Richard Scott says: “Delivering these benefits over index-linked gilts depends on M&G’s managers reading the markets right and we are confident in their ability to do this.
“Our focus on funds invested in the shares and debt of financially strong, world-leading companies may look dull but we think it is the right approach for what probably lies ahead.”