Investors are about to experience unprecedented shifts in global monetary policy, but there are certain sectors that can offer them protection, according to Simon Edelsten, who runs £250m across two funds at Artemis.
Mr Edelsten pointed out interest rates have started to rise in the UK and US, and that higher rates tend to challenge equities' valuations.
Furthermore, he said, economic history offers few precedents of large-scale 'tapering' - the withdrawal of central banks' bond-buying quantitative easing programmes.
Higher interest rates tend to have a negative impact on equity markets because the higher debt costs of companies means they have less cash to distribute to shareholders or invest.
Higher debt costs also mean consumers have less cash to spend, denting the prospects for economic growth.
But Mr Edelsten said for his £80m Artemis Global Select fund, he is invested in sectors of the market he believes can perform well, whatever happens to monetary policy.
He said: “Valuations do not stand still. Even if the average multiple of share prices to cashflow falls as US interest rates rise, some companies will grow their cashflows enough that their shares will continue to rise.
"We expect growth in the main themes in which we invest – automation, tourism, healthcare costs and online services – to be at least as strong in 2018 as it was last year."
Central banks' tapering policy is the ending of quantitative easing, which is likely to contribute to bond yields rising and reduce the amount of liquidity in the system, and that would be expected to be negative for asset prices.
Alan McIntosh, chief investment strategist at Quilter Cheviot likened quantitative easing to a bucket of water with a hole in it.
He said QE is pumping water into the bucket to slow the flow of water of the bucket, but the recovery in the economy boosts bank balance sheets and lending conditions, which fixes the hole in the bucket, and means the water doesn’t need to be pumped in any more.
In that scenario, the market should not be materially impacted by the ending of QE, and equities are the best asset in which to be invested, he said.
Alex Crooke, who runs the £1.1bn Bankers investment trust said has been buying banks shares to profit from rising interest rates.
Banks would be expected to benefit as they are required by regulators to hold a significant portion of their assets in bonds, and the income they can derive from those assets rises as bond yields rise.
David.Thorpe@ft.com
