GlobalFeb 3 2017

IA 100 Club: Axa IM’s Stride mulls value in emerging markets

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IA 100 Club: Axa IM’s Stride mulls value in emerging markets

Axa IM manager Jim Stride is contemplating a rare foray into emerging market equities despite being “a little more cautious than normal” in running the firm’s Global Distribution fund.

The veteran manager, who works on the £142m vehicle with William Howard, has been considering whether emerging market woes have brought prices to an attractive enough level for inclusion in the portfolio.

As of last year, the fund held just 0.3 per cent in Mexican stocks, with the broader emerging markets asset class accounting for less than 10 per cent of the portfolio, but Mr Stride said he was now starting to look again at the sector.

“There may be some latent value in some of the smaller emerging markets,” he said. “If that’s the case we will make some changes. If we were to take, for example, Mexico – it has been weak in dollar terms. That would be the kind of thing where value, or relative value, might potentially emerge.”

After several years of underperformance, last year saw emerging market equities appear to find their stride, returning 32.6 per cent in sterling terms, according to FE Analytics.

But Mexico, the subject of new US president Donald Trump’s ire, underperformed with a sterling return of just 8.3 per cent. With its currency slumping in light of Mr Trump’s protectionist stance, this translated into a 9 per cent drop in US dollar terms.

US politics has also influenced Mr Stride’s fixed income positioning; he has upped exposure to Treasury inflation-protected securities (Tips) instead of UK equivalents or conventional bonds.

“The reflationary aspects of the Trump presidency are probably good for inflation-linked and probably not so good for conventional fixed income sectors, going into a rate-rising environment,” he explained.

“We added to our weightings in US Tips rather than, for example, sterling index-linked, in light of that market’s strong run.”

The manager, whose fund seeks a growing income with some prospects for capital growth in the medium to long term, also continues to favour US stocks, which have performed strongly in recent months.

“We are well exposed to the US,” he said. “The top positions are Alphabet, Johnson & Johnson, Apple, Intel and IBM.”

Mr Trump’s intention to increase infrastructure spending and cut taxes appears to have bolstered markets recently, with the Dow Jones Industrial Average and S&P 500 benchmarks hitting new record highs last week.

However some ‘Trump trades’ – such as buying financials at the expense of bond-like stocks – had showed signs of retracing earlier in January, and Mr Stride said investors should be wary of potential US market “disappointments” later in 2017.

“The market is anticipating further growth in US activity, relative to the rest of the world,” he said. “But at some point the equity market may be disappointed.

“The disappointment is more likely to be reflected later in 2017. The government needs to make the policy machine shift. That’s where the scope for disappointment on valuations rises.”

Mr Stride, who stressed that the Global Distribution fund caters to cautious investors, noted that he had taken a more careful approach in the wake of market buoyancy.

“We normally have about 2 per cent cash, but we [currently] have 4 per cent cash,” he said. “We are a little more cautious than normal. We are holding back a little bit of firepower at the moment.”