The chief investment officer of Seneca Investment Managers has said he is looking to increase his equity exposure to go even more overweight.
Peter Elston said he has been getting “excited” about recent market volatility but has been tempering this with the knowledge that many of his client will be very nervous.
He said he has already increased Seneca’s exposure to equities so it is 4 per cent overweight at the expense of fixed income and specialist assets.
Mr Elston said: “We are in the process of raising it to 6 per cent, which leaves us with a lot of powder dry in the event that we have a nasty global recession or another banking crisis.
“In that event we would be ready to go to 10 or 15 per cent overweight.”
Mr Elston said Senaca has been using specialist investments such as Reits, private equity and infrastructure as a replacement to fixed income because yields are much higher and income streams are index linked.
But he said he does not believe there will be another recession in the near future because of the economic indicators.
Mr Elston said: “What I tend to look at as indicators are things like yield curves, which have fallen but they are still positive.
“Inflation pressures are still very weak. Recessions normally start when central banks are trying to restrain inflation pressures. That was the case in 2007 and in 2000 but we don’t have that now.
“I also look at output gaps to measure whether economies are operating at full capacity. The last two recessions started when the global output gap reached 2 per cent and we are currently at minus 2 per cent.”
He said that a lot of the issues faced by the markets are down to “fragile” psychology and an “absolute fear” of a repeat of 2008.
Mr Elston was relaxed about the idea of negative interest rates, which have already been introduced in Japan, Sweden, Denmark and Switzerland as well as having been advocated by Bank of England chief economist Andy Haldane.
Mr Elston said: “There is a price of money at which you will start to get investment picking up but central banks don’t like interest rates being negative.
“They feel they are in a desperate situation but if that’s what it takes to get investment picking up then so be it.”
