Chatfeild-Roberts has bolstered his investments into First State Pacific leaders as well as both Findlay Park’s Latin America and US smaller companies funds’ across the four-strong fund of funds range.
At the beginning of April the £2.3bn Merlin range held cash positions ranging from 15 per cent in the growth portfolio to 21.9 per cent in the balanced portfolio.
The cash weighting across the funds now stand between 3 and 5 per cent.
Chatfeild-Roberts says: “It does not surprise us that the best performing areas of the world have been among the emerging markets. Some of these sold off heavily in recent months, due to acute risk aversion, rather than any significant changes to the long term investment case. Emerging markets tend to be underpinned by strong domestic demand, a growing middle class and supportive demographics.
“There is also evidence of the earnings downgrade cycle bottoming out. We have begun to re-invest in specific geographical areas that, we believe, are structurally sound and where valuations have become extremely attractive. These include Latin America and Asia. We favour countries in these regions where national debt, household debt and inflation are under control.”
Chatfeild-Roberts says that few believe in the recent rally in markets while analyst forecasts have been overly pessimistic this year, having been optimistic in 2008.
He says: “Every time company results or bank losses are not as bad as feared – often because the 2008 comparator figures were worse -the market ticks up.
“At the same time, economic fundamentals remain weak and earnings’ visibility is poor. Unemployment is rising -US unemployment hit almost 9 per cent in April – and banks expect to post more loan losses. Nonetheless, given the huge amount of investor cash sitting on the sidelines and the need for hedge funds to cover their short positions, there is a good chance of this rally being sustained further than many think possible. We expect the market to become more discerning from here on in and for our underlying managers to benefit.”