Leyland, who manages the JOHCM Global Opportunities fund, says the current backdrop is becoming increasingly difficult for investors looking for value because QE and the hunt for yield have distorted markets.
"Current conditions are very challenging for investment. QE has created an environment where no asset class is attractively valued on an absolute basis," he said.
The consensual view is that the global economy is witnessing some sort of recovery. This has been reflected in improving investor sentiment, with the equity markets in the US, UK, Europe and Japan all performing well over the past 12 months.
Performance of indices over 1yr
Source: FE Analytics
However, Leyland says that in order for the economic recovery to continue, and for the global stock market to kick on, corporates need to lead the way and spend their now hefty cash reserves to create jobs and increase business activity.
However, the manager says company management teams are taking a different approach.
"The big problem is too much emphasis has been placed on distributions to shareholders. QE has left people searching for yield and because of that, companies are giving their cash back to investors."
"Shareholder returns are now seen as special dividends or share buy-backs, not investment in growth on their behalf. It has left job-creation very weak and no change in real wage growth as companies are not investing in themselves," he added.
Leyland says that the US is one of the major problem areas.
He adds that in order for economic growth to gather momentum, it needs to be led by capex [capital expenditure], however more and more corporates are paying dividends instead of investing for growth.
Leyland is unsure about what will trigger corporates to start deploying capital. However, the manager says that interest rates will have to rise at some stage – as Clive Beagles and Christopher Lees told FE Trustnet last week – which could change the current dynamic.
"When it comes to possible hikes in interest rates, I am more bullish than others," he said.
"Firstly, it would stop the crowding out of certain income-producing areas and could bring on the recovery, as it will change the attitudes of US corporates as productive investment would be back in vogue."
"It would totally undermine the dividend yield argument of equities as there would be a re-emphasis on compound growth as the reason to own equities," he added.
Leyland has managed the £6.9m JOHCM Global Opportunities fund since its launch in June 2012. He also works as deputy to FE Alpha Manager John Wood on his JOHCM UK Opportunities fund. Leyland’s Global fund is run in a similar vein to Wood’s portfolio.
According to FE Analytics, JOHCM Global Opportunities has returned 30.8 per cent since its launch, slightly outperforming the IMA Global sector.
Performance of fund vs sector since June 2012
Source: FE Analytics
The manager says that in order to drive returns, he is concentrating on companies that are spending on capex, as they will be the types of stocks that will re-rate as interest rates rise.
"I am looking for companies that are re-investing cash back into the business to ensure they grow," Leyland explained.
However, as the manager pointed out earlier, he is finding it difficult to spot attractive opportunities at the moment.
He adds he would always prefer to buy stocks on a "double discount" – by which he means growing companies that are on a discount to their intrinsic value – but he says there are not many left at the moment.
Nevertheless, he points out that investors who look for bombed out stocks in the hope they will appreciate in value are making a huge mistake. In the current climate, he is taking a different approach.
"We want to protect our downside risk," he said. "When there are very few double-discount stocks, we don’t want to impair the quality of our portfolio for valuation purposes."
"We would prefer to pay up for quality. There is more chance of crystallising your losses if you just buy cheap companies."
The manager says one of the implications of rising interest rates is that companies that have the ability to self-fund their growth deserve to be trading on a premium, so he has no issue paying up for them.
Leyland says he copies legendary investor Ben Graham in that respect. Graham is regarded as one of the best ever value investors, whose style and teaching influenced Warren Buffett.
Graham once wrote: "The risk of paying too high a price for good quality stocks – while a real one – is not the chief hazard confronting the average buyer of securities."
"Observation over many years has taught us that the chief losses to investors come from the purchase of low-quality securities at times of favourable business conditions."
Currently, Europe is Leyland’s largest regional weighting. It makes up 31.6 per cent of his portfolio while North American and UK equities make up 29.6 per cent and 23.8 per cent, respectively. He also has a hefty 12.9 per cent in cash, which reflects his rather negative view on current valuations.
JOHCM Global Opportunities requires a minimum investment of £1,000. The ongoing charges figure (OCF) is 2 per cent and it also has a performance fee of 15 per cent if the fund beats its benchmark.