In a world where many asset classes look expensive, Japanese equities continue to offer investors some value, according to EQ Investors’ portfolio manager Kasim Zafar. ‘Despite recent strength, we still see it as one of the cheapest markets,’ he said.
Japanese prime minister Shinzo Abe has presided over an extraordinary stimulus programme, known as ‘Abenomics’, to break Japan’s 20-year deflationary cycle. Zafar believes this programme has already had some success and has much further to go, particularly as Abe’s Liberal Democratic Party achieved a landslide victory in October.
‘We’re particularly positive on Japanese equities, as structural reforms have fed through into corporate earnings,’ said Zafar. ‘We think the next stage of recovery will see wage increases. Population dynamics are working in favour of this, which should support domestically oriented companies.’
The portfolio manager remains bullish on Asian equities. He thinks the region will benefit from synchronised economic growth and technological innovation.
EQ’s investment team also has a positive outlook for European and emerging market equities. On a sector basis, they like technology and continue to monitor US financials. ‘With a pro-cyclical outlook they stand to benefit from any recovery in value stocks,’ Zafar added.
Short and sweet
The team’s optimism does not stretch to long duration bonds, however, due to the potential for higher inflation. ‘With tight credit spreads, we see little value in either investment grade or high-yield bonds at an asset class level. We like funds with highly flexible mandates, an emphasis on short duration and those that include floating rate instruments, such as asset-backed securities,’ he said.
In the past 12 months, the team has reduced cash levels, given an improved outlook for global growth. Cash has been put into equities, mainly European and Japanese, and alternatives.
Zafar said the investment team constantly monitors portfolios to make sure they are positioned appropriately. EQ Investors came into existence in 2014 after Bestinvest founder John Spiers bought the financial planning arm of Truestone Group and rebranded it.
‘Regular rebalancing is an important part of our review process and helps improve the risk/reward profile of the portfolios. We also need to be alert for changes in fundamentals (such as our views on markets), fund manager moves or new fund launches,’ he said.
Portfolios typically have a higher allocation to active funds. But the investment team is happy to use passive funds where appropriate.
Data to 31 December 2017.
*Other includes alternative investment strategies/undisclosed/others.
**Excludes platform charges and adviser fees. Includes charges on constituent funds.