Many US commentators are questioning how the US seems capable of adding more jobs while GDP growth is minimal. The perception that quantitative easing is benefiting banks and foreigners more than Americans is taking hold, according to Jane (pictured), who says this will lead to a shift in policy that is likely to boost the country’s stock market recovery.
"QE has benefited financial markets and banks rather than the American people," he said. "It has benefited China and Asian property markets at the expense of the US, but that’s not the policy of the US central bank.""What they are talking about now is the government issuing bonds directly to the Fed and issuing that to fund tax cuts, which is directly to the benefit of the US consumer."
Jane argues that this transition – should it occur – would be positive for stocks serving the US consumer.
In contrast, it will be negative for China and emerging markets, including EM debt and Asian property REITS, which both hit Jane's returns during the market correction this summer.
Jane’s TM Darwin Multi Asset fund was the best performer in the IMA Mixed Investment 20%-60% Shares sector in 2013 until markets fell off from 22 May.
It made 15.64 per cent while the sector made just 9.3 per cent, according to data from FE Analytics, but it was exposed when markets turned.
Performance of fund vs sector 1 Jan to 22 May
Source: FE Analytics
The portfolio lost 9.01 per cent over the next month while the sector was down just 6.23 per cent.
However, it has rebounded sharply and is now up 12.58 per cent in the year, the fourth-best result in the sector.
Performance of fund vs sector year-to-date
Source: FE Analytics
"We got caught slightly when the market tanked in June, but we took remedial action very quickly," Jane said.
"Often people forget that one of the best tools you have got for risk management is action."
Jane sold down his holdings in EM bonds and reinvested the money into mainstream US and European equities.
"Having been the best-performing fund in the sector year-to-date, we lost that and then gained it back and more now," he continued.
"It goes to show you can’t sit back on your heels and you sometimes have to accept some of the positions you had were wrong and move on."
"We had exposure to EM bonds and these sort of things and when the markets move from expectations of 'QE forever' to 'the world economy is recovering', these and Asian real estate as well had been big beneficiaries of this QE."
Jane explains that he has cut down his weighting to Asian REITs from between 7 and 8 per cent to 3 per cent.
He has also been reducing his index linkers and building up very short-dated dollar-denominated bonds.
"If there are corrections, you should make money in dollar bonds," he explained.
The manager says that he has a bearish outlook on emerging markets, which are essentially proxies for China, dependent on that country’s appetite for resources and commodities.
China is struggling to develop from an emerging market into a developed one, he says, and may not be able to manage it.
"What caused the crash? China exporting and recycling into fixed income markets. You could argue now in the period we are in, China exporting less, having been reliant on exports, has actually led to the domestic financial crisis in China."
"That seems to be unravelling: is China a classic emerging market where the financial and emerging market economy is highly dependent on exports, but the shift away from it ends up in something like the Asian crisis?"
"They do not have a sophisticated domestic economy, their financial markets need development."
"Is China becoming a traditional emerging market? People say it’s a command economy, so if it becomes dependent on consumer spending that’s more an intangible, we cannot say 'go and spend' as you can say 'go and build a railway'."
Jane says that as well as the US and the UK, he currently favours Europe, which is attractively valued.
The fund currently has 16.81 per cent in US equity, 18.67 per cent in UK shares and 12.4 per cent in Europe ex UK markets.
"I would still have more confidence in Europe than in Asia," he said.
"If you think about the stage we are in in the market cycle, it’s a little bit like ’94 or ‘04/’05 where you have come through a ropey period for the economy and into a recovery phase. Interest rates might increase but at the same time it seems clear the numbers in the developed world are getting better. That would favour early-stage cyclicals and mid cap stocks."
Jane says that many investors have been surprised by the recent good economic data out of the UK, but the signs have been there for over a year.
"People are struggling to believe the economy is getting better in the UK," he said. "Expectations have been so drummed down that people expect the misery to continue, but the evidence for domestic recovery has been around for 18 months."
His holdings in this country are tilted towards mid cap names and engineering companies such as Inchape, Barratt and ITV.
He is also making money out of peripheral European bonds, which he acknowledges raises some eyebrows.
The £34.7m fund was launched in June 2011 and has made 16.5 per cent over that time while the average fund in the sector has made 13.18 per cent.
It is available with a minimum initial investment of £1,000 and has ongoing charges of 1.84 per cent.