Concerns over global growth and earnings data have already cancelled out much of the QE-inspired market positivity, according to PSigma’s Thomas Becket (pictured).

Becket, chief investment officer at the firm, thinks markets have risen largely on wishful thinking rather than anything more substantial, and says investors should err on the side of caution before adding risk to their portfolios. 

"To us, financial markets appear to have reached a state of limbo," he commented. 

"Having initially reacted very positively to the colour of the central bankers' money, in recent days investors now seem to be waiting to see if their hyperactivity actually changes the trajectory of global growth, hopefully aiding a recovery from the latest summer swoon."

He added: "It has been noticeable that as markets have moved higher in the last three months from the July lows, the global economy has weakened and worldwide trade and manufacturing activity has declined." 

The FTSE 100 opened around 0.7 per cent down this morning on the back of worries over waning global growth, giving back much of the gains it made late last week.

Becket believes that by January 2013, investors will be presented with a much clearer market landscape. 

"As we stand, some leading economic indicators are still suggesting that Q4 will be another difficult quarter. However, as we have seen repeatedly over the last few years, conditions can change very quickly. If confidence shifts, markets could move very quickly, in either direction." 

"There are a number of headline issues for markets to grapple with in the coming months, including the on-going European debt crisis, the US presidential election and a tricky political and economic transition in China."

Becket believes that any sustained surge in the market must come from real data and not just the hype that surrounded QE3 and the ECB’s bond-buying scheme. 

"A period of consolidation and a possible correction therefore for equity and credit markets seems likely after the recent strong moves, as investors digest every piece of economic data and corporate announcement." 

"Asset prices are now not sufficiently cheap to justify a move higher on hope, so it will have to be positive reality that supports a further rally," he said. 

In spite of his caution, Becket, who manages PSigma Dynamic Multi Asset, believes that investors would be better off holding risky asset classes in the coming months as the bond market is no longer as safe as it used to be. 

"In our opinion, equity markets remain moderately priced, with income yields increasingly attractive when compared to other asset markets, which has encouraged investors to review their current positions in cash and high-quality debt," the manager said. 

He thinks that the actions of central banks have driven the relative value of cash and government fixed interest assets to new lows, so investors must move to a more risk-on strategy. 

"The central bankers want those assets to become more expensive still and will aim to tempt investors to switch into riskier assets by making the alternative 'safer' asset classes, such as cash and government bonds, so unattractive that they are almost uninvestable," he said. 

According to FE Analytics, Becket’s £18m PSigma Dynamic Multi Asset fund is underweight fixed interest compared with the IMA Mixed Investment 40-85% Shares sector average. The lower-risk portion of his fund of funds is invested in alternative strategies such as commodities ETFs. 

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Since the fund’s launch in September 2009, it has returned 29.24 per cent, beating its sector average of 23.15 per cent.

Performance of fund vs sector since launch



Source: FE Analytics

The fund has a total expense ratio (TER) of 2.53 per cent and requires a minimum investment of £10,000.