Kames Capital’s Scott Jamieson has set his portfolio in anticipation of further monetary easing from the US, rejecting the market consensus that it will reduce its quantitative easing (QE) programme.
Mr Jamieson’s Kames Inflation Linked fund has already suffered in terms of performance this year after having a very bullish stance going into May when US Federal Reserve (Fed) chairman Ben Bernanke first announced the ‘tapering’ of QE.
The fund had a peak to trough loss of more than 13 per cent between April and June this year as the fund’s focus on index-linked bonds and high-dividend paying equities sold off due to fears that the US would slow down its easing programme in what Mr Jamieson termed a “brutal” market reaction.
But he has stood by his stance that there is “no basis for tapering” and said he expected the Fed to continue with its $85bn (£53bn) of monthly asset purchases or even raise the number of purchases next year. This flies in the face of market consensus, which assumes that the US will start tapering at some point in the first half of 2014.
Mr Jamieson said he was therefore bullish on markets and in the fund, which has a multi-asset approach mainly focusing on equities and index-linked gilts, he said he had been adding much more to equities recently.
He favours stable dividend-paying stocks, preferably with cashflows that provide some protection from inflation, such as insurance companies like Legal & General and Resolution.
Mr Jamieson has recently established a position in National Grid, the utilities giant, because of its 6 per cent yield and the fact that the cashflow from its services rises with inflation.
He also added to Direct Line when it sold off through August and September and it has since rallied, while he also added to GlaxoSmithKline and said he was currently looking to increase his exposure to real estate investment trusts (Reits).
The stocks that Mr Jamieson is buying are those that rallied strongly through the end of 2012 and the beginning of 2013 because people viewed them as ‘bond proxies’ due to their historic lower volatility and high yields.
Many ‘bond proxy’ stocks were hit particularly hard by expectations of QE tapering and have yet to fully recover, but Mr Jamieson has been adding to his positions.
He took over sole management of the Inflation Linked fund in June 2013 after previous manager Stephen Jones was promoted to chief investment officer.
Since the fund was launched in July 2010, it has delivered a return of 24.3 per cent, according to data from FE Analytics, although it has delivered less than 1 per cent in the past two-year period.
Last month, Kames adjusted the benchmark on the fund to reflect its mandate of aiming to beat inflation rather than an index. Whereas it had previously been attempting to beat the FTSE Index Linked Gilts over five years index, the fund now has the target of beating the retail prices index (RPI) by 4 per cent annually.