These are confusing times for equity investors. While global stock markets are surging ahead and major economies look strong, there are political risks across the globe.
But fund managers remain confident there are enough equity safe havens to enable decent returns over the coming months.
‘This index is mostly large, international companies that earn a proportion of their revenues in US dollars, which is a hedge against currency weakness,’ he said.
Such companies are also a safe haven if you believe we could be in for stagflation, which is characterised as periods with high inflation but no growth.
‘Equities are the best defence in this case, especially those with pricing power and exposure to international markets where growth rates are higher,’ said Clark.
He also suggested economic problems in China could be countered by US bonds, while government bonds from other countries could be used in the event of a US recession.
Citywire AAA-rated David Coombs, head of multi-asset investments at Rathbones, believes the safest place for equity-only investors concerned about the backdrop is US large caps.
‘If you’re nervous about the UK, sterling, and UK inflation, then overseas developed market currencies are the best and cheapest form of insurance,’ he said.
Coombs said buying US large cap names provided the double benefit of exposure to both the US dollar and the growing US economy.
‘The US consumer is quite strong and you can find more quality companies with strong balance sheets in a broader spread of sectors,’ he said.
Jonathan Simon, manager of the JP Morgan US Value fund, has most of his assets under management concentrated in the financials and consumer discretionary sectors. Within these areas he has exposure to insurance companies, as well as a diverse set of retail companies.
Many consumer product companies have survived two world wars and a great depression, but trade on cheaper price-to-free cashflow ratios than the overall market.
‘Brexit hasn’t changed Colgate’s UK market share, and if the eurozone breaks up we will still continue brushing our teeth,’ he said.
Parkinson insists any potential safe haven equity needs to demonstrate a resilient business model and a discounted price-versus-intrinsic value. He also says his fund has maintained a positive bias towards emerging markets and the US at the expense of Europe and other developed countries, such as Japan.
‘The reason for this is their superior growth outlook, thanks to factors such as superior demographics and better government finances,’ he said.
It is an overall investment approach he plans to continue for the foreseeable future.
Adrian Lowcock, investment director at Architas, believes that, while the bull market has been around for a while, it has not been excessive and could feasibly continue.
‘Investors are typically exposed to the benefits of a rising market so it’s best to have some investments that will do well if the bull run comes to a natural end,’ he said.
Lowcock trusts businesses that have been through market cycles and are well positioned to survive another recession or downturn.
Being diversified across global equities also makes sense as some parts of the US market have become expensive. ‘Europe and Japan remain more attractive, whereas Asia and emerging markets are looking cheap, but naturally riskier in the event of a global recession,’ he said.