Portfolio picks  

Portfolio picks: positive on risk assets in Asia and emerging markets

Portfolio picks: positive on risk assets in Asia and emerging markets

It has been a busy start to 2018 here at Quilter Cheviot.

We have been overweight equities as a house for a number of years now and while there might be a number of signs that we are approaching the end of the cycle, we still remain positive on risk assets.

There have not been major changes to portfolios but, that said, it has mainly been a case of adding to some of the financials and industrials within our segregated equities, and to Asia and Emerging Markets.

Global economic growth looks robust, companies are announcing good corporate earnings growth and positive outlooks and the tax reform recently enacted in the US has awoken “animal spirits” and helped equity markets make further headway in spite of headline valuations perhaps looking more expensive than their historic averages.

We are somewhat wary about the potential for rising bond yields globally to cause some volatility in equity markets although the recent increase in yields globally has been calm and without trouble.

Financials stocks such as banks and insurers typically perform in such an environment, and so recent activity has focussed on ensuring we have full allocations to stocks such as HSBC, Lloyds and Prudential in the UK, JP Morgan Chase and Goldman Sachs in the US and ING Groep in Europe.

Within industrials, DS Smith and Smiths Group feature along with global names such as Honeywell and Siemens, which are currently benefitting from the upturn in the economic cycle as evidenced by the PMIs. 

The UK stockmarket has performed a little better in relative terms of late due to the improvement in the energy and mining names – a large part of the index.

However, we feel that overseas markets are better placed to capture the cyclical upturn and we have taken an overweight stance to Asia and Emerging Markets to help capture this view, having already been overweight European and Japanese equities at the expense of the UK.

In summary, portfolios are positioned constructively to capture the positive economic fundamentals, improvements in corporate profits and continued favourable monetary conditions.

Focus in the short term has thus been on ensuring areas within portfolios such as financials and industrials are well populated.

We have added a small amount to Asia and Emerging Markets at the expense of the UK. 

Jonathan Raymond is investment manager at Quilter Cheviot