Rory McPherson, head of strategy, Psigma Investment Management
Equities
Equities look fairly attractive at present based on positive earnings and easy(ish) policy. Valuations aren’t compelling, but this is heavily skewed by the US market – which is outright expensive. Regionally, places such as Japan and emerging markets offer decent value, and earnings growth in both these regions is very strong. Japan remains our key pick.
Bonds
Core bond markets look very expensive, with yields at heavily depressed levels. We are happy to own these assets tactically but do not believe they offer long-term value. Within fixed income, we favour European asset-backed income securities that benefit from decent yields, good flows and very low sensitivity to interest rates. High-yield markets have had a decent run, but still offer reasonable carry in a world of low yields.
Commodities
Commodities are beginning to look attractive based on oversold sentiment indicators. We like being contrarian, and given the recent negative price action they are currently flashing as being a good entry point. Valuations are not particularly compelling in pure-play commodities due to the upward sloping nature of futures curves. We would argue that commodity and resources stocks offer better value and would benefit from the resurgence of the reflation trade, which has been overly penalised recently.
Property
We access property through global real estate investment trusts (Reits) as opposed to bricks-and-mortar property due to the illiquid nature of the latter. We currently have near-zero holdings in Reits across our portfolios. It is the sensitivity to bond yields that really turns us off holding these assets, as price movements have taken them into overbought territory. Many of these assets are US based, and the retail outlook there continues to worsen.
Alternatives
Alternative investments cover a massive catch-all category of strategies. At present we favour those with low or negative correlation to equities, to provide protection should equity markets pull back from what look like toppy levels. Our alternatives allocation combines emerging market debt, long-short equities, credit and currencies, and macro-trading strategies to try to benefit from some of the distortions in investment markets.
