The global appetite for risk has been dented by the unfolding Greek crisis and softer global economic data, although the recapitalisation of Spanish banks, as well as positive indicators in the US, Japan and now China – following the recent cut in interest rates – have been met by some with great optimism. The markets have even made back much of what they lost in April and May in the last week or so.
With such a challenging decision facing investors, Mark Harris and Chris Jaques, who head up the CF Eden Global Multi-Strategy portfolio, discuss what areas bullish and bearish investors are better off backing.
Bull view
"From a macro perspective, attractive valuations can be found across asset classes. Our focus is on areas that will provide low exposure to Europe’s periphery and higher yielding securities that are still in demand in this low interest rate environment."
"In the equity markets, the leading fallers have been financials, IT and materials; we expect these to show a lead on the way back up."
"Also, there is a good opportunity for rebound in the mining sector – gold miners in particular, which have been heavily sold. A lower oil price is also positive for inflationary trends and consumption."
"Mid caps have held up well and are the leaders to watch. There is room for a significant recovery in emerging markets such as Brazil and Russia when risk appetite returns as well."
"Some of our favoured funds in the alternative sector like Brevan Howard Credit Catalysts, BlueCrest AllBlue and CQS have good discounts and solid NAVs year to date."
Bear points
With so much risk in the markets, Harris and Jaques see developed government bonds as one of the few options available to bearish investors.
"European issues still weigh heavily on the markets and yields are at all-time lows. Event risk has led to another flight to government bonds and, if Greece takes a turn for the worse, yields have further to fall."
"In the equity market, earnings have been very important in this environment and companies missing their expectations have been sorely punished."
"It is important investors recognise that the FTSE 100 has not been a safe haven with its concentrated mix and vulnerability on down-days."
"In the credit markets, financials are still high risk – particularly European banks, which are just as risky as European equity."
"It is difficult to see gold as a safe haven asset either, as it has behaved more like a risk asset in recent weeks, questioning its safe haven status."
With so few options available to those that are bearish, Harris and Jaques believe the long-term investor would be much better off taking advantage of cheap valuations.
"The markets are becoming over extended on the downside; technicals and relative valuations point towards a near-term entry point for new capital and we believe investors should use the pullback in markets to invest in select sub-sectors and geographies," they concluded.
Performance of fund vs sector since January 2009
Source: FE Analytics
Since Jaques took over as manager of the £65m portfolio in January 2009, it has returned 26.34 per cent, marginally outperforming its IMA Mixed Investment 20-60% Shares sector average, albeit with more volatility. Harris joined the team in September 2011.