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My three big calls: Thesis Asset Management’s Steven Richards

RichardsSteven2015

Infrastructure

Investors are growing more concerned about rising yields following the unwinding in the bond market but many infrastructure funds have been conservative with their payouts and therefore still look attractive to us.

While many of the trusts available to investors are trading on premiums now, some still look appealing, especially as they offer investors inflation protection. It is true inflation is yet to become a problem but these investments will prove very popular if we do get a spike in CPI.

There could be an issue for infrastructure investments if a big seller emerges (for example, a very large multi-asset manager trying to exit a position) but demand is currently outstripping supply and that popularity is putting real momentum behind net asset values in the space.

As an additional benefit you are also picking up a yield of, on average, 4.3 per cent from the sector: well ahead of bonds and equities.

Cash

Cash has become more attractive as an alternative over the last year as yields on government bonds continued to plunge.

In a world where everything looked expensive, we allocated tactically to the asset class over the last 10 months. There have been periods where equities and bonds both accelerated higher but that is now unwinding.

Despite the recent setback for equity markets, the risks there are still quite high. We think you could see a further pullback from this level before things settle.

Clearly cash yields nothing at the moment but it does provide protection. With so many other assets looking overvalued it remains a useful diversifier too. When you consider the situation in Greece and the prospect of a rate rise in the US (which could hit all risk assets), the case for cash becomes all the more compelling.

Japan

Japanese equities continue to look the cheapest on a global basis (particularly versus peers in the UK and US) and we maintain our faith that prime minister Abe’s Abenomics, as well as other stimulus measures in that market, will drive them higher.

Just as US equities had a great run following the introduction of quantitative easing, Japan’s programme is now in full swing and should keep providing a boost to both sentiment and valuations.

The region also continues to benefit from the weaker yen and we do not think the full impact of this is recognised by analysts yet, especially in areas like exporters.

We therefore think the momentum behind Japanese equities can continue for some time. And while some investors will be fearful that it could enter bubble territory, we are nowhere near that situation currently. The upward trend has much further to run, especially given its discount to other markets.

Steven Richards is investment manager at Thesis Asset Management

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