Neptune's Geffen on how he is positioning his portfolios

Neptune's Geffen on how he is positioning his portfolios

Robin Geffen, chief executive of Neptune Investment Management, has said the election of Donald Trump will shock the investment community out of a "stale and pessimistic collective mindset." 

The manager of Neptune's £202.7m Income fund said the mindset, which has been employed by the investment community over the last few years "has made no sense at all".

Mr Geffen said: "If one thing characterises the morbid group think of recent times, it is the inexplicable demand for bonds and bond-like assets despite their truly pitiful returns.

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"At the same time, historically low bond yields have fed the gloom of investors: “Larry Summers can’t be serious that growth is over, can he?”, “Well, perhaps, just look at those yields!”"

However, Mr Geffen said bond yields are now on the rise, using the example of the US 10-year government yield rising from less than 1.4 per cent in July to its present height of 2.5 per cent.

Additionally, he added pre-election, futures were pricing in a Fed funds rate of less than one at the end of next year, now they are pricing about 1.75.

"One of the most fascinating macro debates of the past year has concerned the Neo-Fisherian claim that we ought to re-write the economic textbooks because interest rates don’t have a negative effect on growth and inflation, they have a positive effect.

"We’re not ripping up our textbooks, but do believe that amid rudderless soul searching during the post-crisis era, investors and even policy makers have peered deep into the distorted mirror of the markets for the answers."

Mr Geffen said this was "foolish" and now that yields are rising, there is "almost an audible collective sigh of relief".

He added the real world fundamentals are supportive of higher yields and a stronger US dollar and were so before Mr Trump's election.

He explained Neptune view is the incoming administration will be a coalition between Mr Trump and the Republican party and see two areas of agreement: tax reform, cuts and deregulation.

"Both will happen to some degree and both will be pro-growth. A key economic impact already underway, however, it is on Japan’s economy, where rising yields around the world have acted to deliver a much-needed depreciation of the yen, given the Bank of Japan’s policy to peg 10-year yields on Japanese government bonds at about zero.

"We believe that there is a lot to like about Japanese equities given domestic policy support and corporate reforms. Global macro, which spoilt the picture earlier in the year, has now turned supportive."

Mr Geffen added political risks loom on the horizon in Italy, France and Holland, and concerns over the future of the European Union are likely to result in volatility next year.

"That said, in our view globally the opportunities for returns outweigh the risks. For now, we believe you should be in the market."