After a very strong start to the new year for risk assets, James Bateman, CIO, multi asset at Fidelity International, discusses why the team at Fidelity is tactically taking advantage of value opportunities in emerging markets, while maintaining a cautious outlook overall.
“If the market was fully convinced of a return to risk, then traditionally defensive assets like US Treasuries and gold would certainly have faltered by now. Instead, they have continued to perform, leading us to believe that market participants remain open to the possibility of global growth stalling, and safe-haven assets becoming more attractive from here.
“But on the other hand, there are still pockets of value to be found globally. One example is in emerging markets, which are presenting opportunities across the capital structure. Driving this are attractive valuations after a weak 2018, a US dollar unlikely to appreciate further, the dovish turn by the Fed depressing real rates, and despite oil rallying significantly so far in 2019, it is still down from its multi-year peaks in 2018.
“This month, we have further added to emerging markets by moving overweight hard currency debt. But maintaining selectivity is important, and we don’t simply buy the relevant indices when it comes to emerging markets, but instead leverage our dedicated Manager Research team to find the most skilled active managers in what is a heterogenous market.
“To balance our overweight position in equities, we continue to like fixed income over cash, and are biased to quality across regions. We have increased conviction in our US Treasuries position, as we believe that this ‘barbell’ will serve us well if equity volatility returns.
“After a very strong start to the new year for risk assets, we are still cautious given that fundamentals have not improved along with markets. While we are tactically taking advantage of pockets of value across regions and the capital structure, we remain mindful of the late-cycle risks building.”
Fidelity International is responsible for £75.9 billion in assets under administration.
