Investors should be more than willing to take on risk within portfolios as the current downturn cycle comes to a close and markets shift into a ‘stability’ phase.
This is the view of Tamsin Evans, head of the multi-asset team at River and Mercantile Group which runs the Dynamic Asset Allocation Fund.
Ms Evans has been moving up the risk spectrum with the view that markets will see an uptick towards the end of this year.
Ms Evans said: “While we still consider this the downturn phase, things are a lot more stable now than they have been, and we’ve seen equities in most markets move from expensive to fair value, and even cheap in some areas.”
Despite equity markets being in a downward spiral since ‘Red October’ and on a six-month view the FTSE 100, S&P 500 and MSCI World are all in negative territory, Ms Evans believes the market is showing key indicators to buy.
Ms Evans said: “After the heavy falls of December, equity and credit markets staged a partial recovery.
“The resurgence had actually begun near the end of the previous month, and there was a general feeling that December’s sell-off had been too sharp.
“This was a view that we shared, especially in relation to US small- and mid-cap stocks, European stocks, and emerging market stocks.
“We are seeing the early signs of recovery in many markets, and now some of the forward-looking PMI indicators we follow are also screening positively. Overall, it means markets are now pointing to an upturn in the next six to 12 months.”
As a result, the team has increased its allocation to risk, moving from materially underweight to closer to neutral.
Equity and credit positions have both been increased, while within equities there has been a focus on smaller companies.
Ms Evans said: “How we are playing this is to move down the cap size in equities, particularly in the US where there are opportunities now, as well as EMs. We are still underweight EMs but we are increasing our exposure.
“We are essentially on the cusp of what we call the “stability” phase, and our main equity trades are now focused on emerging markets and developed Asia.
“Meanwhile in credit, having been significantly underweight throughout 2018, we have increased both high yield and EM hard debt since the start of the year, with a particular preference for high yield given the increase in spreads witnessed over December.”
River and Mercantile an asset manager which had £33.8 billion of assets under management as of 30 June 2018.
