View more on these topics

Investec’s Stopford backs US equities but warns over ‘aggressive’ rate rise

Investec Asset Management portfolio manager John Stopford is bullish on US equities but is less convinced on some parts of fixed income as we move closer to a rising interest rate cycle.

Over the past 12 months, Stopford and his multi-asset team have been “more constructive” on growth-oriented assets as the group plays down fears of a global recession and continues to find valuations in equities attractive.

He says: “We are focused on growth-oriented assets such as equities, but also credit and property, as the current market cycle is not finished yet.

“However, we are more defensive in credit as it tends to underperform at the end of market cycles.”

The manager of the £96.7m Investec Diversified Income fund currently favours financials and has some exposure to energy stocks, which he believes have begun to perform “reasonably well” despite the oil price drop.

He says: “We will continue to buy equities as the asset class has lower volatility and more income generating characteristics than others.”

Over the summer Stopford says the biggest shift within the fund was to hedge some of the equity exposure to mitigate the risk of a market correction.

The team hedged 40 per cent of the equity exposure using futures instruments but then removed those hedges when markets fell, Stopford explains.

The current equity exposure in the fund is at 28.3 per cent, including European, UK, US and Japanese equities.

He says: “We are positive on Japanese equities, which we are expect to increase, and we’ve also recently added to Europe using index futures.”

Stopford is also more positive than many of his peers on the outlook for US equities, which currently account for one third of the equity exposure in the portfolio, similar to the UK equities slice, Stopford says. “US equities are still the most dynamic asset class out there, although they remain very expensive.”

In the US, the fund has positions in branded goods and healthcare, which are among the areas “where the US continues to lead”, Stopford says. “The US equity exposure is not huge but it is one of those which gives us a consistent yield.”


Stopford says the fund tends to opt for a sustained yield of between 2 and 5 per cent. He also expects the US Federal Reserve to drive forward with a significant rate rise next month.

“You will see a more aggressive US rate rise in December than expected. Within the fund we are  hedging some US durations to limit the impact of a more aggressive rate rise. We also have a 20 per cent exposure to the US dollar, which we think will benefit the fund against the sterling in a higher interest rates environment,” says Stopford.

“The US rate rise will be in stark contrast with the further monetary easing policy that will happen in Europe soon. The US currently stands out to be at a different stage in the market cycle. It is the exception rather than the rule.”

Although making some tweaks to asset allocation, the portfolio manager says the fund has been broadly in its current form since mid-2012.

“This fund was the first multi-asset income strategy at Investec and one of the more defensive ones aiming at the ageing demographics and maintaining a lower volatility target,” he says.

The fund has traditionally been more weighted on the fixed income side but the manager has gradually reduced the focus on the asset class in the wake of this year’s bond sell-off.

Stopford says: “The older approach of the fund was much more focused on bonds, but then it was unlikely that fixed income could give us a high yield, especially after the bond market went through the big correction in recent months.”

Within fixed income, the fund keeps “defensive positions” mainly through developed government bonds and investment grade corporate bonds, which make 17 per cent and 11.9 per cent of the fund, respectively.

However, Stopford’s team has significantly reduced its exposure to emerging market debt from 30 per cent three years ago to less than 20 per cent, of which a portion is still hedged.

Although emerging markets remain “a question mark” for Stopford, within emerging market debt he still holds Mexican government bonds as he thinks this is “one of the stars” of the region.

He says: “Mexico is heavily exposed to the US, it is well valued and doesn’t have the same reliance on oil price that other emerging markets have.”



Cost of acquiring clients ‘threat to robo-advice’

The cost of acquiring clients is the “elephant in the room” in the online advice debate, says FinaMetrica. In a report on the robo-advice market, published last week, FinaMetrica says developing a successful online advice proposition requires a significant marketing investment. The risk profiling tool provider says: “Robo-advisers are very good at servicing customers, but […]


Malcolm McLean: Get ready for contracting-out fallout

Bringing in big changes to pensions is often not quite as easy as it first seems. Rarely is it possible to make a complete break with the past in setting the direction for the future, and there are usually complicated transitional stages to get through before the old is fully replaced by the new. That […]


Aegon UK earnings slump as pension freedoms ravage back book

Aegon’s UK business has reported a 12 per cent decline in underlying pre-tax earnings during the third quarter as Chancellor George Osborne’s retirement reforms continue to ravage its back book. The provider’s Q3 results, published this morning, reveal earnings dropped 12 per cent year-on-year, from £22m to £19m. Earnings within the provider’s life business were […]

Piling in: Advisers must adapt as investors switch to cash and property

Advisers are being urged to review their business models following new evidence that investors are moving away from traditional assets and piling into property and cash. Data compiled by EY shows that cash deposits saw a 17 per cent compound annual growth rate in new business flows between 2010 and 2014. In 2010, new business […]

Inheritance tax – How to declare and who pays

By Kim Jarvis, Canada Life In this article we look at which forms personal representatives (PRs) need to complete and who actually pays the tax. To recap, under current rules, any part of the estate that falls within the available nil-rate band (NRB), currently £325,000, is taxed at zero. Anything in excess of the NRB is […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment