Multi-manager Toby Vaughan has reduced the “aggressive” overweight position in developed versus emerging market equities in his Atlas portfolios.
Mr Vaughan, who runs the Santander funds with Tom Caddick, said he had reduced his exposure to the US, Europe and Japan in favour of Asia and emerging markets.
“In the second half of last year we were quite aggressively overweight developed market equities versus developing, and we had that position still at the start of the year, which worked well,” he said.
“But we have been reducing the size of the position, and where we were very underweight emerging markets and Asia we are now essentially flat.”
Mr Vaughan said he still prefers developed market equities because there are macro issues in developing economies investors need to be aware of, such as the growth and inflation mix in emerging markets and the issue of how developing economies will react when the US begins to reduce support for its economy.
“Some of our metrics that look at more behavioural and momentum factors and relative valuation factors are saying, in the short term, the strength in emerging markets may continue,” he added.
The manager said “slightly improved” data from China had also helped his decision to increase exposure to emerging markets and Asia.
In fixed income, the manager said he was underweight every sub-asset class except high yield, adding that he “[does] not expect a material correction in bond markets” and that the risk trade will “remain intact”.
He said he was overweight global high yield, although his absolute position is not large.
Mr Vaughan said: “There are signs of complacency entering the high yield market, particularly in the low-grade area. This is sometimes a worrying stage of the cycle, as people hunt for yield and get greedier. We are assessing if we are at that point. I would say we are closer than we were, but we are not there yet.”
He added that conditions in US high yield were better than those in European, and that the premium investors would normally expect for investing in Europe over the US was “not evident any more”.
“You are not being compensated for the risks you are taking in European high yield,” the manager added.
Mr Vaughan recently added to the Ignis Absolute Return Government Bond fund, which he purchased with the proceeds from the sale of the JPMorgan Income Opportunities fund. The Ignis fund and its team has moved to Standard Life Investments as part of that company’s acquisition of its Scottish rival.
He said the Ignis fund relies less on market beta to generate returns and so will likely help the absolute return portion of his funds.
