Kames taps Asia as macro effect abates

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Kames taps Asia as macro effect abates

The opportunity set in Asian equities is broadening out as the dominance of macroeconomic factors lessens, Kames manager Craig Bonthron has claimed.

In recent years stocks in the region, and emerging markets more broadly, have been subject to significant volatility, in part because of external forces such as swings in commodity prices.

However, Mr Bonthron, who co-manages the £53m Kames Global Equity fund with Neil Goddin, said the weakening influence of macro events and a proliferation of stock-specific ideas had prompted the team to “shift more towards Asia and emerging markets”.

This is despite the MSCI AC Asia ex-Japan index losing 6.7 per cent in the last year, according the FE Analytics.

“There seem to be ideas that are emerging that have a sustainable growth story, rather than in previous years where it has been very macro-driven and, driven by that, dollar strength and moves in commodities,” he explained.

This has seen the duo increase the fund’s weighting in Far East ex-Japan by 5 percentage points in recent months, bringing it to 14.3 per cent by the end of May.

Recent additions to the fund in the region include South Korean consumer goods business LG Household & Health Care and Chinese sports clothing firm Anta Sports.

The allocation to non-Asian emerging markets remains at zero, however.

While Mr Bonthron is not the first to dip a toe back into such regions, he believes it may take time for other global managers to follow suit.

“A lot of global funds may be underweight that region so there’s a way to go in terms of moving the needle back to emerging markets,” he said. “Most people will have meaningful underweights.”

The managers have also looked to neutralise factor-specific risk, which they believe is on the rise. The fund has a slight growth bias versus value, but will look to remove this and shift risk to become stock-specific.

“We have noted an increase in factor risk as markets have rallied, driven by cyclical stocks,” Mr Bonthron said.

As part of increasing stock-specific risk, the pair initiated positions in industrial product provider Rockwell Automation, oil company PTT Public, BlueScope Steel and aluminium supplier Norsk Hydro.

Recent additions to the portfolio have been funded by the sale of bleach company Clorox, auto manufacturer Continental and smaller trades in underperforming growth stocks.

Mr Bonthron noted that consumer discretionary – which made up 16.4 per cent of the fund at the end of April – could “lighten up” in coming weeks, while he could increase exposure to healthcare.

Other areas such as technology are well represented in the fund – with 28.2 per cent allocated to information technology at the end of April – although Mr Bonthron would not back the sector unconditionally.

“We have a plethora of ideas in technology and are having to be selective in terms of which ones [we use] because we don’t want to be running a tech fund,” he explained.

According to FE Analytics, the fund has returned 0.1 per cent since Mr Bonthron was listed as co-manager in August 2015, with its IA Global peer group shedding 0.2 per cent over the same period.