Today we initiated some changes in the FG portfolio which are
explained below.
Sell First State Global Emerging Market Leaders and Baring
ASEAN Frontiers
These sales have been made as part of a tactical asset
allocation decision. With Fed tapering still a major issue and sentiment towards
Emerging Markets not improving there is a likelihood for a further fall should
the Fed signal tapering in September or October. The current P/B of many EM
countries is very attractive and long term investors could see strong upside.
Our tactical decision is to wait for further volatility before buying back in at
hopefully cheaper prices.
Increase Ignis UK Absolute Return Government
Bond
Our base case is for developed bond yields (Treasuries, Gilts
and bunds) to continue to rise. There is a knock on effect for all fixed income
which is priced off these government bonds. The Ignis fund’s strategy allows it
to make money from these rising yields, which we find very attractive. At the
same time it provides diversification to our equity holdings, helping to smooth
volatility within our portfolio.
Increase 3x Short Euro Long USD
The Euro and Sterling have shown remarkable strength against
the USD over recent weeks, making the entry point for this top-up very
appealing. Should Bernanke signal tapering, then we are likely to see the USD
strengthen. With Draghi keen to keep policy very accommodative in the Eurozone
we think this should lead to a weakening of the Euro against USD. Another
benefit of this trade is the protection against a tail risk of the German
elections. If Merkel does not get back in there will be question marks over the
Eurozone and this will likely lead to a weakening of the currency, helping this
trade. With all currencies they need to be monitored very closely. From these
levels we can see short term upside of 15%-25% as this is a leveraged trade, and
we will evaluate along the way.
