Psigma Investment Management’s portfolios may look “about as boringly positioned as possible” but chief investment officer Tom Becket says this veneer conceals a number of contrarian plays.
After “one of the most powerful equity bull markets in history”, Becket believes many of the easy returns have already been made and has been tilting the wealth manager’s range of portfolios to the few attractive areas left in the market.
At a headline level, Psigma is neutrally positioned in most asset classes although it is taking bold bets within these. For example, it has about 40 per cent in developed market equities and is neutral on emerging markets – a fairly typical allocation – but is investing in several unloved areas.
Becket says: “If you scratch below the surface and look at some of the idiosyncratic positions, you’ll find that our portfolios are much more interesting than they may look on a snapshot basis.”
Psigma is underweight the “structurally expensive” US and UK, where the CIO believes much of tomorrow’s economic strength has been priced into equities. Both markets have rallied strongly over recent years and are now flirting with rec-ord highs.
“Given we are underweight two of the major markets, that leaves our current overweight position in the once-again deeply disliked and distrusted Japanese market, where we have gone from consensus last year to contrarian this year,” Becket says.
The firm increased its exposure to Japanese equities during the market’s recent fall, adding to an existing holding in the £471.8m Jupiter Japan Income fund. Becket says Japan is “exceptionally cheap”, having fallen almost 10 per cent since the start of the year, and goes against the consensus that prime minister Shinzo Abe’s massive stimulus programme has failed.
“If that wasn’t scary enough, we are also quite overweight selective European markets and sectors,” the CIO adds. “We believe the current valuations of selected peripheral European companies allow investors to buy future profit growth at
really quite cheap prices.”
On a country level, Psigma likes Spain and Italy because companies there are very cheap compared with their long-term history. As for European sectors, financials, consumer discretionary and industrials are in favour with the firm.
“These sectors should allow investors to benefit from a grad-ually improving economic environment where very healthy corporate balance sheets should allow companies to generate extremely strong profits in the next few years through operational leverage,” Becket says.
“In effect, what may happen to European companies over the next three years is what happened to US companies three years ago.”
Given how far equity markets have come over the past five years, Becket advises caution for the next half-decade. “We need to rein in client expectations,” he says.
“The days of double-digit annual returns are probably behind us.”
About Psigma Investment Management
Psigma Investment Management is part of financial services business Punter Southall Group but aims to offer the “agility, flexibility and responsiveness” of a small boutique investment house. The firm specialises in building bespoke investment portfolios and does not believe in relationship managers – instead offering clients access to the investment director who is overseeing their portfolio.