Coombs (pictured) says investors need to be very selective in picking funds or risk being sucked into a rally that has no obvious cause.
"We are pausing for breath," he said. "We do want to increase our weighting to equities but we are holding quite a lot in cash right now, up to 14 per cent on the Enhanced Growth fund." "It does feel like a January euphoria rally, which makes me nervous. So we are holding off adding equities for the time being."
"The simple reason is we cannot find much value anywhere. Unless you get incredible growth in the US, it’s hard to see where the earnings are going to come from."
"Currently emerging Europe is still the only region that looks cheap – although it’s cheap for a reason."
Coombs holds the Baring Emerging Europe fund in his £8m Rathbone Enhanced Growth Portfolio; the fund makes up 6.7 per cent of the portfolio, and is its second-biggest holding.
"We felt if Europe recovered, it was a high-Beta play on that, and it was on a P/E ratio of five-times earnings when we bought it."
The Rathbone Multi Asset Enhanced Growth portfolio has made 7.89 per cent since launch, while its bespoke benchmark – 2 per cent over the MSCI World and MSCI Emerging Markets indices weighted 70/30 – is up 11.13 per cent, according to data from FE Analytics.
Performance of fund vs benchmark since launch
Source: FE Analytics
Coombs also heads up the team on the Rathbone Multi Asset Strategic Growth and Rathbone Multi Asset Total Return funds.
The manager is increasing his weighting to Europe, despite the fact that he does not share the optimism about the continent’s economy.
"We have been reducing our overweight to the States and increased exposure to Europe," he said.
"The short-term outlook for the US market has moved bearish. We still prefer it to Europe but we were very overweight."
"You can’t be too simplistic in how you look at geography. European companies that export to growing economies are worth looking at on valuation grounds."
"We prefer exporters in Europe rather than domestic plays. We can’t see growth in Europe or the UK this year."
"We are looking at Chris Rice’s Cazenove equity income fund for more Europe exposure. We had zero in Europe but are now up to 2 to 3 per cent.”
Cazenove European Income was launched only in May of last year, meaning that a yield figure is not currently available.
It has outperformed its sector over that time however, up 27.61 per cent against the 23.01 per cent made by the sector.
Coombs is particularly uninterested in the UK and is scathing of the Government’s economic policy.
"Austerity is too extreme in the UK and Europe. Cutting capital spending is wrong – we’re cutting the wrong type of spending."
"The Government is right to look at cutting benefits but its fiscal policy is flawed. Raising taxes while the consumer is under duress, while prices are going up, is not going to help the economy."
"However, it’s very difficult politically so we are seeing the Government following populist policies and it’s hard to see that’s going to change in the short-term because of the reality of coalition government. Look at the fuss when George Osborne cut the top tax rate to 45p from 50p."
The manager says that it is still possible to find UK funds worth buying, but that he looks at ones that derive their earnings from overseas.
"The UK equity market is not the UK economy. That’s the difference between economists and investors."
"Economists cannot see any optimism but BA is selling planes to Saudi Arabia. As investors, you need to pick managers that are able to pick stocks doing well."
He likes BlackRock UK Special Situations, which is run by FE Alpha Manager Richard Plackett and is a top-quartile performer in the IMA UK All Companies sector over three, five and 10 years.
Performance of fund vs sector over 5yrs
Source: FE Analytics
Coombs says he values the ability the fund has to invest in mid and small cap companies, but is likely to trim his holdings and take profits at some stage soon.
He adds that Asia remains the best bet for growth and has pushed his weighting on the Strategic Growth fund to its highest yet.
"We have gone further overweight Asia. We were never in the China hard-landing camp anyway, but if you look around the world you have to go where the growth is."
"At the moment we are using the iShares MSCI Far East Asia ex Japan while we consider other funds and look to top up our existing holdings."
"That will take Asia up to 8.5 per cent in our Strategic Growth portfolio, the highest weighting to Asia that we have."
"We like to be long-term holders of active funds so if we aren’t sure which portfolio we prefer in a certain area, we sometimes use a passive first."
The Rathbone Multi Asset Strategic Growth portfolio has the longest track record of the three funds Coombs runs.
It sets itself the target of beating the UK Consumer Price Index plus 5 per cent and FE Analytics data shows it has more or less achieved this.
Performance of fund vs benchmark to 31 December 2012
Source: FE Analytics
CPI figures can only be measured up to the latest month-end, but our data shows that the fund made 34.62 per cent between launch and 31 December 2012, a fraction higher than the 34.49 per cent of its benchmark.