Multi-managerJun 16 2015

Parmenion sells down US to buy into emerging markets

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Parmenion sells down US to buy into emerging markets

Parmenion has piled cash into emerging markets within its tactical portfolios, having raised the money by selling off US equities.

The discretionary manager has also moved into its most aggressive position possible in Japanese equities as part of its latest asset allocation changes.

Parmenion had held a neutral position in emerging markets in its tactical portfolios, but after the latest meeting of its managers, the firm has moved this to an overweight position.

Meera Hearnden, senior investment manager at Parmenion, said: “The significant fall in oil prices is expected to permit policymakers to adopt accommodative strategies given a weaker inflation outlook.

“With a significantly larger investable universe, fund mangers have increased potential to identify fundamentally appealing mispriced opportunities.”

Emerging markets had a strong start to the year, but have given up much of their gains in recent months.

Year to date the MSCI Emerging Markets index has returned 5.9 per cent, slightly underperforming the MSCI World index, which has returned 6.3 per cent, according to data from FE Analytics.

Ms Hearnden also noted that if recent dollar strength starts to lose some of its steam, then emerging markets should benefit.

However, the market consensus is that the dollar is not expected to lose strength any time soon, while most managers currently have an underweight in position in emerging markets due to concerns such as slowing growth and the impact of an interest rate rise in the US.

The surging dollar has also led Parmenion to move its neutral position in the US to an underweight.

“While fundamentals in the US remain strong, valuations are towards the top end of their historic trading range, and the recent strength in the dollar has hindered sales and growth rates over the last few quarters,” Ms Hearnden said.

She added: “Increasingly this appears to be affecting earnings, which has led us to look for better opportunities in other asset classes.”

Indeed, while the S&P 500 index has hit record highs this year, US equities have underperformed the global market and have significantly lagged returns from European and Japanese equities so far this year.

Parmenion is bullish on Japan’s prospects and has moved from a single overweight to a double overweight in the country, which is the most overweight position the group can move to within its tactical portfolios.

The group is confident prime minister Shinzo Abe’s series of reforms, dubbed ‘Abenomics’, will successfully reinvigorate Japan’s economy.

While Mr Abe got off to a strong start when he was elected in December 2012, long-term reforms have proven hard to implement.

Ratings agency Fitch recently downgraded Japan from an ‘A+’ to an ‘A’ rating, citing a lack of confidence in Abenomics, and said Japan’s budget for 2015-2016 “did not include sufficient structural fiscal measures… to replace a deferred consumption tax increase”.

However, Parmenion is convinced that “relative to other asset groups, valuations appear attractive and strong earnings growth is encouraging”.