Octopus’ Wallin eyes return to US growth funds

The Octopus multi-manager investment director noted that, with depressed oil prices creating a “dividend” for consumers and interest rates staying low, equities could make gains in 2016.

He is mulling changes to his US equity exposure – via Octopus’ Global Growth and International Equity vehicles – to capitalise on boosted consumer confidence.

“We are looking at the US consumer as the positive story for this year,” he explained. “Low oil prices should act as an oil dividend to the consumer. It should also help with transport costs for businesses, which we hope feeds into wage rises.

“A lot of it is potentially priced in and the US market has looked expensive, so it doesn’t mean we are building exposure to the US. But we are looking at funds in the US marketplace that have a bit more orientation to the consumer and discretionary spending.”

Mr Wallin is considering adding to existing holdings such as Morgan Stanley US Growth and Vanguard US Opportunities, at the expense of the Artemis US Extended Alpha fund.

“The [Artemis] fund has more of a cautious stance,” Mr Wallin said. “We might shave a little bit off and reallocate more to the US consumer-focused funds.”

However, the shaky market sentiment seen at the start of the year means he is wary of making significant moves just yet.

“For the past few months we have known that markets have been very brittle,” he said.

“We came into 2016 with a view that sentiment was going to be pretty fragile, with a lot of volatility in the first half of the period.

“Longer term, we felt there were positives, that global growth was taking hold. After we have seen a big clean-up in markets during February, we suspect things might be looking better and equity markets have room for growth in the remainder of the year.”

Elsewhere in equities, Mr Wallin prefers developed economies – especially those where monetary stimulus is being deployed – over emerging markets.

Currency shifts in Europe and Japan have seen him seek hedged exposure.

With central banks in Europe and Japan putting downwards pressure on their currencies, Mr Wallin claimed holdings such as Verrazzano Advantage European and Polar Capital Japan had an advantage because of their hedged share classes.

He also holds a hedged iShares MSCI Japan ETF.

The yen reversed its recent downwards trend at the start of this year as safe-haven flows strengthened the currency. However, Mr Wallin suggested ETFs represented a way to play “more opportunistic trading” relating to currency movements.

Meanwhile his fixed income exposure remains “pretty steady”, with short duration and an overweight to corporate bonds the order of the day, in part because he believes gilts to be expensive despite a strong recent performance.

“We are prepared to sacrifice some of that short-term gain,” he said.

Mr Wallin criticised sovereign debt funds for being too defensive, but he does hold the Royal London International Government Bond fund for its “broader exposure”.

In the alternatives space, the team has sold out of the Bluecrest AllBlue fund as it rolled over into a new vehicle run by Highbridge Capital, as well as dropping BlackRock Emerging Markets Absolute Return and Eclectica Absolute Macro after “neither fund performed as we hoped”.

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