Fidelity portfolio manager Steve Gibson favours developed over emerging markets in his multi-manager balanced fund.
Until the final quarter of last year, Gibson had been overweight in emerging markets by 2 or 3 per cent relative to a 1.5 per cent average within the IMA balanced managed sector. He says this overweight was small in asset allocation terms but points out that exposure to emerging markets can be played out through companies based elsewhere, such as the UK, which derive revenue from emerging markets.
Gibson is positioning the portfolio towards domestic growth in developed markets, reducing emerging market exposure at both the asset class and them- atic level. He says is doing this because better data is coming out from developed markets.
He is wary of some headwinds or factors that will have a short-term negative impact on emerging market growth, such as inflation and the potential for emer- ging marketing economies to overheat due to overproduction.
For Gibson, the US is an example of an attractive developed market. He says loose fiscal policy has helped, along with capital expenditure, consumer spending and job creation.
But Gibson does not expect developed markets to perform well in the future. He already has reservations about the UK due to its tighter monetary policy than the US and its inflation problem.
Europe is seen as problematic due to the need for monetary policy to stay loose at a time when Germany would need to raise rates but cannot due to the effect on other countries.
Gibson says: The danger point everyone is aware of is the euro needs to be weak if Europe is to grow its way out of trouble.”