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My three big calls: Peter Askew on European asset-backed securities, healthcare and Japan


In the first half of 2014 equity and bond markets have not performed quite as investors were expecting.

Developed market equities struggled to make any headway for some time and there was savage sector rotation and sell-offs in the US tech and healthcare sectors.

But more recently, developed markets performed better, with US equity indices setting new highs.

The pattern was similar in emerging market equities, which started the year unloved but staged a comeback in the second quarter.

Like equity markets, bond markets were confused by data in but have also now  turned positive. 

Overall, most investments have ended up having a decent half-year, which has left investors scratching their heads about where to find value in equities and bonds.

European asset-backed securities

In early June the European Central Bank announced a €400bn (£318.4bn) targeted long-term refinancing operations programme, which will provide banks with four-year funding at 0.25 per cent.

While this gained the headlines, what received less attention was the ECB’s decision to “intensify the work related to outright purchases in the ABS market to enhance the functioning of the monetary policy transmission mechanism”. 

The ECB has a habit of buying cheap assets. The simply structured and transparent European ABSs fit the bill. They are generally well capitalised with excellent asset coverage. Already at attractive yield spreads, they appear to be about to find a significant purchaser, lending strength to the investment case.


The healthcare sector exhibited extreme volatility earlier this year as valuations were questioned. While some stocks were running on vapour, many companies with strong long-term stories were victims of an indiscriminate sell-off. This allowed some good specialist funds to acquire or add to long-term holdings at good prices.

Healthcare offers a good long-term opportunity. There is an emphasis on monitoring and prevention rather than treatment and cure, and easier access to genome sequencing is enabling medicine to become more specific to individuals. 

There will still be market oscillations but it makes sense to tune out the noise and focus on the long-term healthcare theme.


At the time of writing, the Nikkei was down about 5.5 per cent in the year to date. This is due to concern about April’s sales tax (VAT) hike from 5 per cent to 8 per cent and a lack of clarity about prime minister Shinzo Abe’s ‘third arrow’ structural reform.

But Japanese earnings estimates remain less challenging than other regions and there are plans to cut corporation tax from about 36 per cent to below 30 per cent.

Despite a weak performance so far this year, we believe there is good reason to stick with Japanese equities.

Peter Askew is co-manager of the T Bailey Growth, Dynamic and Defensive funds




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