PSolve chooses managers for a difficult year

PSolve principal Carol Allison is expecting both bonds and equities to have a difficult time this year. Allison, whose company runs the newly launched InflationPlus fund of funds on behalf of Io Investors, is part of the investment management team. She says: “We saw a huge run in equities last year and we don’t believe that is sustainable given the underlying economic fundamentals.” She adds: “With bonds we have interest-rate expectations, so valuations will come under pressure. Both these outcomes are quite negative, so we need to make sure the type of managers we pick will be able to add value.” To guard against this, Allison picks managers that she believes will do well in challenging markets: “We want bond managers with the flexibility to move into index-linked gilts if interest rates rise or move across the regions to take advantage of rate differentials.” Bond funds she likes include the Thames River High Income and Thames River Global Bond funds. In equities, she likes Morgan Stanley Funds’ Global Brands fund. “If you look at the way this fund behaved during the market downturn, it had a positive return,” she says, adding: “If markets are roaring away, it will underperform but still produce positive returns.” The fund of funds, which was launched last week, aims to give returns of 5% or more above the UK rate of inflation. BestInvest researcher Rob Harley describes this target as “a bit toppy”. He adds: “I reserve judgment on that. If they reckon they can do that year-in, year-out, they would have every investor in London beating down their door.” Harley also questions the top-down approach: “I don’t think it is that easy. It is difficult to call these shots.”