Mayell says the JPM Multi Asset Income fund has been steadily increasing its exposure to developed market equities mainly in Europe and the US over the past year, lowering exposure to fixed income in the process.
However, she says it has also recently increased its exposure in emerging market debt.
“We have had very low levels of exposure over the past year or so but we have been pretty content to put some money to work there as valuations are looking attractive and when we talk to investors on the ground they say there is much better news there,” she said.
Emerging markets have been generally out of favour for the past twelve months after a sell-off began when the Fed hinted it would taper its monthly stimulus program in May 2013.
This was further exacerbated in January 2014 when the taper began causing currency fears which quickly spread through several emerging market countries.
The FTSE All Share and S&P 500 are both up since the sell-off began, 2.5 per cent and 3.67 per cent, respectively, whilst the MSCI Emerging Markets index fell 10.2 per cent over the same period.
Performance of indices since 22 May 2013
Source: FE Analytics
Mayell says investors panicked and sold off the debt too quickly over the past 12 months making it attractively valued.
“It was over-owned and was the first area people sold-off when investors started to panic about emerging markets. It was very drastic,” she said.
“They particularly panicked in the hard currency part of the market, which is where we are currently seeing strong value,” she added.
“The upside potential is good, but our position is still reasonably modest compared to developed market equities but we are happy to buy a bit more of it soon as it is still cheap.”
“It should also be quite offsetting of the risk from our developed market equities exposure, which is very strong.”
However Mayell says emerging market equities are still overvalued with a lack of clarity on when the market may turn.
“We have got exposure to emerging market equities but it is relatively strategic – we want to have a diversifying position there but we think that a neutral or negative weighting is as much as we want.”
“We would only increase this if there was also an increase in the valuation gap with developed markets, more upside available and a general change in sentiment.” There is a lack of clarity to what would be the catalyst of this in the short term.”
“There are a few great opportunities in individual stocks but from a macro perspective there is no obvious sign when the market will turn. This is unlikely to change for at least the next 12 months.”
The team are also adding to their European equities allocation given the attractive yields available there.
The £290m JPM Multi-Asset Income fund switched its preference for fixed income over equities -- 60 per cent versus 40 per cent - twelve months ago to a preference for equities.
“We have rotated from the high yielding fixed income areas of the portfolio into high dividend paying European and US equities,” Mayell said.
She says this rotation has been fruitful in growing yields, as bond markets narrow and the economic outlook improves.
“At the moment fixed income is really a question of how much juice you can squeeze out of the lemon and when we look at the market now it is not very much. Looking back a few years that is a massive switch,” she added.
The fund has also had other changes to its asset allocation changes with a move to shorter duration in anticipation of rising interest rates and holding a duration hedge but has stuck to high yield for fixed income exposure, particularly favouring US non-agency mortgage backed securities.
The fund was launched in June 2009 and according to our data the fund has been a top quartile performer in the IMA Mixed Investment 20 -60 per cent sector over both one and three year measures.
Over three years it has made 21.79 per cent, beating the average fund in the sector by nearly six percentage points.
However, it failed to beat its benchmark – the MSCI World – over the same period, which rose by 28.79 per cent. The fund currently yields 3.7 per cent.
Performance of fund, sector and benchmark
Source: FE Analytics
David Millar, manager of the Invesco Perpetual Targeted Absolute Returns fund, recently told FE Trustnet he had also taken significant positions in local currency emerging market debt.
