Talking Point  

Reflation trade prompts investors to look away from US

Reflation trade prompts investors to look away from US

Rising inflation has prompted the joint manager of the Premier Miton multi-asset fund range to turn away from the US market  in search of opportunities. 

David Jane, who jointly runs the range of funds with assets of over £1bn, says the uptick in inflation has increased his desire to own more cyclical stocks, and this has led him to reduce his US exposure, and buy more UK and European stocks, as more of the cyclical stocks that he likes in the UK. 

He says: “In this environment we are trying to balance thematic growth areas, (such as tech, renewables, med tech) against reflationary areas such as energy, materials and financials.

As a consequence we have less US exposure as some of the areas we have added recently are better represented in Europe in particular (inc UK). The UK has most of the global miners and lots of energy.  The US does have plenty of financials and energy but on blanace in a reflationary environment you end up with more UK than before.

Our US exposure still has a good slug of big cap tech , but now also has industrials, energy and med tech in much greater scale.”

In it’s latest commentary, the Blackrock Investment Institute forecast that bond yields will be lower over the longer-term than the market is presently forecasting, such a scenario would be positive for most equities, but would be least beneficial for those equities which benefit from higher inflation, while tech stocks tend to benefit from lower bond yields as more of their income is generated in the future than the present, and so a lower yield from assets which pay an income now helps the relative attractiveness of longer-term assets. 

david.thorpe@ft.com