There are strong signals for global fund managers to buy into the US and Japan, despite the robust E...
There are strong signals for global fund managers to buy into the US and Japan, despite the robust European economy, according to David Sheasby, global portfolio manager at Aegon Asset Management.
The Japanese equity market has been at a low for 10 years and the bad news has been discounted, he says. "Europe is a strong economy and has remained relatively immune to the slowdown, which makes it attractive, but valuations in Japan and the US are more inviting."
But Jonathan Arthur, fund manager of the Deutsche Managed Portfolio Fund, says he has moved to an overweight position in Europe, believing it to be a better bet than the slowing US market.
"Due to our benchmark, we take a very positive stance on Europe and have an overweight position of 1% against the benchmark, totalling and exposure of 13%," he says. "This is our second largest investment after the UK, which makes up 54% of the portfolio. We have a relatively small amount in Asia and around 5% in the US. International and UK bonds make up about 13% of the fund."
Arthur has taken an overweight position in Europe as the robust domestic demand picture is offsetting the slowing of the US economy. He adds that there is also a lack of consumer and corporate gearing in Europe compared to in the US.
He says: "Tax cuts and drops in energy and petrol prices also means that consumer spending in Europe should pick up. We are expecting a GDP in Europe of around 2.5% this year. Additionally, the ECB is yet to reduce interest rates, which has already been anticipated by the markets. We are expecting a cut of 50 basis points in two stages over the next six months."
Sheasby is also expecting a cut of 50 basis points from the current 4.75% to 4.25% by the year-end. He says: "The European economy is slowing but not to a great degree. We don't expect to change our neutral position for some time as bond prices are falling and equity prices are rising."
Arthur looks at Europe on a sectoral basis rather than by country. "There are some country specific fiscal policies that must be taken into consideration and issues such as the tax reforms in Germany are important," he says.
He cites Nokia as a favoured stock because of its ability to reinvest profits. He adds that it is a premium brand and a mass producer making it a long-term winner. "It is one of the best in its sector as Ericsson is outsourcing its manufacturing and Motorola is getting rid of a factory resulting in a loss of 3,000 jobs."
The fund is positioned defensively in sectors such as chemicals, retail and food producers. "We are now looking for a period of stability, for which there will be indicators in advance," he says. "Once we see less volatility we will move away from our defensive position and will look at more tech, media and telecom stocks. We will also look at financial companies, which have had a poor run due to credit quality."
Sheasby is also buying into telecoms as he believes the sector has been discounted and the news will not get any worse. "Telecoms companies are focusing on profitability rather than the number of customers they have."
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