F&C Investments’ head of multi-asset, Paul Niven, has slashed his equity exposure, particularly in emerging markets and Japan, arguing that the short-term value case for equities has faded.
Mr Niven said a “shift in investor perceptions” and the “faltering in underlying fundamental momentum” had led him to take a more defensive stance.
The manager has halved his overweight in Japan, where he thinks “capital expenditure is yet to improve and the yen remains volatile” and reduced his weighting in emerging markets back to neutral in a mission to pull back his equity exposure.
Rather than buying into fixed income, though, which remains an underweight position throughout Mr Niven’s multi-asset portfolios, the manager has been keeping the proceeds from the equity sales in cash, reflecting his cautious stance.
“With faltering fundamentals and tentative signs liquidity may be less plentiful, we have moved to a neutral position in our portfolios, with equities being trimmed in favour of cash.
“Until we see more clarity on economic and corporate outlook, and also for QE, our approach will remain cautious,” he said.
The manager’s cautious stance is down to what he sees as the “brittle” nature of risk appetite, given that economic data has failed to match expectations, particularly in emerging markets. Mr Niven said each new set of data from the US would be scrutinised sharply for signs of whether the economy is recovering or not.
He added that “improving data from the US economy could trigger concerns that QE will be reined in more aggressively than anticipated”, which could spook investors further.
The manager said he had raised his exposure to European equities marginally due to the decreasing impact of the eurozone crisis on market sentiment.
“With the eurozone crisis now having only a moderate impact on market sentiment, share prices are being influenced more by perceptions of macro data relative to the US,” he said.
“We believe there is probably a little too much pessimism towards the eurozone economy, but a stronger euro and the growth-sapping effect of low inflation is preventing us from being more positive.
“In addition, while valuations in Europe appear relatively cheap, we are concerned that there is an insufficient discount when one considers the risks surrounding the eurozone.”
Mr Niven has also moved to an overweight position in UK equities because he sees many signs of recovery in the UK.
“The UK economy is expected to perform more strongly in 2013, the Bank of England will remain accommodative, the housing market outside London is showing signs of recovery and consumer spending is rising,” said Mr Niven.
The multi-asset funds remain in an underweight position to their strategic allocations when it comes to fixed income, but Mr Niven said bond prices were not likely to fall much further following the sell-off due to the expectation of quantitative easing tapering in the US.
“Yields are not likely to stray too far from their recent range because of low growth and inflation and the lingering addiction of central banks to asset purchases,” he said.