James Penny, senior investment management at TAM Asset Management tells us why it's time to diversify as the US steams ahead.
'Global markets in Q3 have undoubtedly seen a move towards a more positive footing akin to early 2018, before the pick-up in volatility that defined markets in Q2.
In Q2 the uncertainty surrounding a number of issues from trade, Brexit, Italian sovereign debt and the dollar had investors looking to insulate themselves from the potential fallout by selling down risk assets such as European equities with a bias towards financials and specifically those most exposed to EU periphery non-performing loans. Outside of western markets investors were getting underweight both emerging market debt and equity in what has been quite the reversal of 2017.
What’s been most noticeable is the strength of the US equity market which has all but dragged the rest of the global equity market into positive territory this year. While we have been trimming positions, remaining invested in the US market continues to be the alpha driver within the TAM portfolios and we don’t believe this paradigm of standalone US growth is about to end in 2018.
We remain overweight both the large cap and small cap end of the market with positioning in the US favouring the small and mid cap active managers. Emerging markets are starting to show meaningful value compared to the likes of the US and as such look like a tempting value play for country specific rebound in Q4.
With the current macro uncertainty and short-term dollar weakness we remain conscious that gold’s lacklustre year could be about to turn, which looks like an opportunity to lock in value on an uncorrelated, safe haven asset. With most of the defensive barriers within the portfolios already constructed during Q2’s volatility, it’s now about patience and being selective in locking in some ex-US exposure for a potential rebound in Q4.
What we are buying
With the emerging markets opportunity remaining highly selective it’s a job for active managers rather than an ETF. We have been investing into the Hermes Global Emerging market fund which continues to navigate the region effectively while being on a 10% discount year-to-date.
Within the US our active management exposure is in Cormac Weldon’s (pictured) Artemis US smaller companies fund, which continues to benefit from excellent stock picking backed by the fiscal boost from the US tax cuts and protectionism contagion.
With Q2’s increases in Investec’s Diversified Income fund as well as Absolute Insight’s Equity Market Neutral fund we have continued to add to our Henderson UK Property investment which, while not a screaming buy from a Brexit stance continues to provide excellent defensive capabilities against conventional markets.
While there are opportunities presenting themselves in equity markets outside of the US, we remain highly committed to building up our portfolios’ defensive, uncorrelated assets which will prove to be an essential backstop to protecting client capital should the global economy take a shortcut towards recession.
TAM’s MPS spans four offerings. The flagship Premier range remains the core of the investment suite which is supported by our more concentrated Focus offering designed for clients with smaller capital allocations as well as investment offerings within ethical investing and Muslim-based Sharia investing. Within each offering models are constructed on a risk weighted basis from defensive to adventurous depending on their allocation to equity markets. Assets under management for TAM’s UK MPS offering come in at just under £300 Million.
TAM’s Premier Balanced strategy is one of the most popular options for clients who want a balanced level of risk within a well-constructed, active portfolio providing exposure to all parts of the market without having to overextend their capital to undue market risk. TAM’s balanced model is constructed on the premise of a 50/50 split between equity and non-equity.
Non-equity investments cover global debt markets, absolute return and market neutral strategies as well as bricks and mortar and physical commodities.'