Le Jehan (pictured) says that he and co-managers Marcus Brookes and Robin McDonald have sold out of Aberdeen Emerging Markets, one of their few remaining emerging markets positions, and still prefer to hold developed markets. They have started to open up a position in commodities as a toe-hold back in emerging markets, but say this is a position that is likely to develop slowly.
"We have been light in emerging markets and for us the emerging markets were the great story of the last decade," he said.
"Even post-crisis, you are starting to see people accept the great growth rates and valuations you had in emerging markets have almost all gone and the stocks are getting more expensive."
"So we have been underweight and where we have had access it has been through Aberdeen and First State, those more defensive areas – consumer staples and so on – which have held up OK relative to the rest of the emerging markets."
"Fast forward to this year and you have had a great 18 months for most asset classes – Europe, the UK, the US have all done fantastically well – but emerging markets haven’t kept up."
"Since the end of 2010 or the beginning of 2011, there has been a good couple of years or so where emerging markets de-rated relative to western areas."
"We still believe the western recovery story is the right area, but on a valuation basis, some of the areas like materials and resources really have underperformed."
The £232m Cazenove Multi Manager Global fund is a top-quartile performer in the IMA Global sector over three years, boosted by its very low exposure to emerging markets.
Data from FE Analytics shows that fund has made 42.69 per cent as the average fund in the sector has made just 26.27 per cent. The FTSE World ex UK benchmark is up 37.17 per cent in this time.
Performance of fund vs sector and benchmark over 3yrs
Source: FE Analytics
Le Jehan says the team on the fund has rotated its minimal holding in Aberdeen Emerging Markets – their last emerging markets fund – into JPM Natural Resources, which now makes up around 3 per cent of their portfolio.
The manager says that there is a better chance of decent returns from commodities than from the defensives that Aberdeen Emerging Markets is buying, given that their part of the market has become pretty expensive.
"With Aberdeen and First State, if you look at the way they have performed since 2011 relative to JPM Natural Resources, there is something like a 60 per cent differential," Le Jehan said.
Performance of funds vs benchmark over 3yrs
Source: FE Analytics
"It has got to the stage where even if you don’t believe companies have great short-term prospects, we think it is worth taking a small stake."
"If you look at how they have performed since the financial crisis, they are funds that have recently hit all-time highs over the last 18 months."
Le Jehan says that he thinks the fund has held up extremely well, and that he is not selling it due to poor performance.
"If you look at most bull market scenarios, you would expect them to underperform, but they haven’t really done so."
"It’s all about valuations. If you think about how we take risk, we think about it as a function of the price you pay."
Le Jehan says that the US also looks fully valued, although its economic recovery is genuine. Europe is still on depressed valuations, he says, and the team is using Invesco Perpetual European Equity and Cazenove European Income to access it.
"Invesco Perpetual European Equity has more of a value slant to it," Le Jehan said. "It has domestic exposure, and a lot of financials, which the majority of its peer group have a large underweight to.”
"It has exposure to Spain and Italy and it buys good companies that have been hit by contagion through the eurozone crisis."
Cazenove European Income also has a value style, Le Jehan explains, and looks for domestic-focused companies.
The fund has produced the second-best returns in the IMA Europe ex UK sector in the year-to-date, up 36.59 per cent. Invesco Perpetual European Equity is third with 35.84 per cent.
Performance of funds vs sector in 2013
Source: FE Analytics
Their style has clearly come into fashion: in 2012 the Invesco fund was fourth quartile. The Cazenove fund was launched only in May of last year.
Le Jehan says that investors may be better off switching from Jupiter European, which has had an excellent run but has been buying areas of the market that have now become expensive – much as the Aberdeen fund has.
"Usually when something has worked for a while it’s time to start looking for the next thing," he said. "That’s where buying commodities comes from."
