Premier’s Simon Evan-Cook is slashing his exposure to Asian equities because he has become nervous about the region’s extended period of outperformance.
Asia has performed strongly over the past decade and this robust performance is beginning to make Premier’s multi-asset manager nervous.
The IA Asia Pacific excluding Japan sector has returned 198 per cent over the past 10 years compared to the IA Global sector, which returned 107.1 per cent over the same period.
Mr Evan-Cook said if a sector has been incredibly strong and topping the performance tables for 10 years, it was likely to be heading downwards soon.
He said: “Asia strategies have been at the top for the past 10 years and that gives us a source of concern. The same happened with US smaller companies, gold and commodities.”
Mr Evan-Cook said warning signs had begun to appear in countries such as China and Japan.
Chinese growth is beginning to slow and there is a question about the success of Japan’s quantitative easing programme.
In January, the Chinese government said its economy had grown 7.4 per cent in 2014, the slowest pace seen for 24 years.
Meanwhile, the battle to rectify fiscal and monetary issues in Japan has been a drawn-out affair. In spite of the government’s determination and resulting monetary policies, doubts remain among investors over whether prime minister Shinzo Abe can turn the economy around.
Asia funds are still a big part of Mr Evan-Cook’s portfolio, but he said he was being selective and avoiding the big stalwarts like Angus Tulloch’s £8.3bn First State Asia Pacific Leaders fund.
“I’ve held Mr Tulloch’s fund in the past and I think he’s a really good manager, but the fund is so large it can’t move nimbly and in this market that’s concerning,” he said.
Instead, Mr Evan-Cook is looking for small funds, like the Prusik Asian Equity Income and the Hermes Asia Pacific ex Japan.
The manager is also looking to reinvest some of the money from his Asian holdings in emerging market (EM) debt, even though he has been absent from the sector for some time.
He said: “I’ve avoided EM debt for years. The sector tends to have peaks and troughs. But my contrarian antenna is beginning to perk up and I think some opportunities will be thrown up.”
EM debt had a volatile 2014. Bonds in the sector rallied in August and early September, only to rapidly lose those gains when the sector fell victim to a sell-off after weak oil prices and low liquidity made investors nervous.
But while Mr Evan-Cook is keen to get some exposure to EM debt, he said he had not yet found a suitable fund.
