Multi-assetApr 22 2014

Ukraine crisis ‘will not derail equities’

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F&C’s head of multi-asset Paul Niven is backing European equities to continue on a positive path in spite of tensions in eastern Europe.

The EuroStoxx 50 index has gained 18.1 per cent in sterling terms in the past 12 months, compared with 5.2 per cent from the MSCI World index.

Mr Niven, who stands to take over the £2.5bn Foreign & Colonial investment trust from Jeremy Tigue in July, said he was also adding to US equities at the expense of positions in the UK and Japan.

The manager said: “We have maintained our overweighting of Europe ex-UK [equities], in spite of the uncertainties created by the crisis in Ukraine and Crimea.

“Although the strong euro represents a threat to exporters, we continue to see a good economic upside.”

He added that markets outside of Russia “have not been not been particularly sensitive to the events thus far”, noting that even oil prices have stayed stable.

“Only if the situation escalates will we know whether markets are underpricing this type of risk,” Mr Niven said.

The manager had a weighting of 13.3 per cent to F&C’s Institutional European fund in his F&C Managed Growth portfolio, according to its December 31 factsheet.

The £139.3m Managed Growth fund is a portfolio made up predominantly of other F&C products. Mr Niven also manages the offshore €379.8m F&C Diversified Growth fund.

Elsewhere Mr Niven acknowledged widespread market concerns about the future path of economic growth in China, saying that “investors are fretting that the world’s second largest economy is misfiring, and worries about the growth outlook are compounding existing concerns about emerging markets in general”.

But the manager argued that policymakers in China “have proven adept at maintaining respectable headline rates of growth and avoiding financial slip-ups to this point”.

“Concern that this historic success has been achieved through over-investment and a gradual erosion of competitiveness is now widespread,” he said. “However, in terms of the outlook for financial assets, we are encouraged by solid profits growth we are seeing across the market, and extremely low share valuations.”

Mr Niven said that he was maintaining an overall overweight position in equities relative to his core strategic asset allocation.

“When there is tangible evidence of a turnaround in the global economy, it is usually the time to be investing in equities,” he said.

“More than five years after the start of the financial crisis, the recovery of the US and the UK is more or less established and there are signs of improvement in Europe and Japan.

“But the chances of this good news translating into another year of impressive equity market returns will depend on how adept the central banks are at weaning the major economies off monetary stimulus.

“Riskier assets such as equities have been kept buoyant by the tide of cheap money and any signs that policy will be tightened more aggressively than expected will unsettle confidence.”

The F&C Managed Growth fund’s 67 per cent return in five years ranked the portfolio in the third quartile of the IMA Flexible Investment sector, according to FE Analytics.

Mr Niven will take over as manager of the Foreign & Colonial trust – the oldest trust in the UK – at the beginning of its next financial year, on July 1. Jeremy Tigue is to retire from F&C Investments after 33 years with the group and 17 years in charge of the trust.

Last month, Investment Adviser revealed that F&C’s multi-managers Gary Potter and Rob Burdett are to take on a new £250m mandate as part of the trust’s move to diversify away from UK equities.

In 2013, it established ‘global income’ and ‘global funds’ sub-portfolios, which took up a combined 10 per cent of the portfolio. They were established largely at the expense of UK equities, but this left the UK portion still significantly higher than its FTSE All-World index benchmark.