Managers increase Europe and Japan

Discretionary managers have upped their exposure to Europe and Japan as they expect improved macroeconomic data and positive sentiment to push the bourses higher.

Japan started last week with a boost after its successful bid to host the 2020 Summer Olympics was accompanied by stronger-than-expected economic data for the second quarter of the year. The figures showed an annualised growth rate of 3.8 per cent, which was above the estimates of 2.6 per cent.

The Japanese economy has now grown for three consecutive quarters and the data led commentators to point to a more entrenched recovery.

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And European equities received a tailwind powered by US investors whose $65bn (£41.3bn) push into European stocks in the first six months of the year was the highest level of investment since 1977, according to data from Goldman Sachs’ European strategy team.

Peter Lowman, chief investment officer at Investment Quorum, said he had also ramped up the risk in the portfolios that were able to take on more.

He said the major trade Investment Quorum had put in place was a general switch out of emerging market equities and towards developed market equities, following a sustained period of underperformance for emerging stocks.

Mr Lowman said the forthcoming tapering of US quantitative easing was likely to further adversely affect emerging markets.

He said he had sold out of fixed income assets in order to buy into both Europe and Japan, which were the two regions where he saw the most value.

He had also adjusted the exposure of his more defensive portfolios in order to allocate further to commercial property and Reits, in order to give investors a better yield than that which is available in government bonds, while also protecting investors somewhat from the inevitable rise in interest rates.

Andrew Johnston, fund analyst at Brewin Dolphin, said European stocks had been “particular beneficiaries” from improved economic data around the world.

“Within this region, we are currently recommending the Threadneedle European Select fund and Neptune European Opportunities fund,” he said.

“The Threadneedle fund can be regarded as a high conviction European portfolio with a focus on quality large caps, with sustainable growth potential. This quality bias has also helped protect capital better during tougher market environments.”

Mr Johnston added the Neptune fund was “highly geared” into a European recovery.

“The strategy is, therefore, heavily exposed to the financials and industrials sectors; areas of the market that are more sensitive to better economic news flow. It is also significantly underweight the more defensive areas such as healthcare.”

Nancy Curtin, chief investment officer at Close Brothers Asset Management, had reduced her equity exposure in July but was now seeking to add to stocks again on the back of improved economic data globally.

“The second leg of the equity rally will come as rates go back up,” she said.