Neptune’s global equity funds are looking to the US, Japan and India to drive returns next year, as the UK faces the hardest election in “generations”, fund manager and chief executive Robin Geffen says.
Geffen believes equities are in a better place than bonds, but he has no exposure to the UK and Europe.
“I see ahead of us the most difficult [UK] general election in several generations,” he explains.
“We think sterling is heading to 1.50 against the dollar because of US outperformance. All it would take is a slight wobble in the UK political environment for it to hit $1.40 – and no one on the sell or buy-side is even thinking of the implications of that.”
That has been complicated by Alex Salmond’s return to politics, a U-turn from his tearful resignation as Scottish first minister following the narrow loss of his independence bid.
Geffen calls the situation a “serious political conundrum”.
He remains confident of strong returns in the US, although there is a good chance of quicker hikes in interest rates than the market expects – and the short-term volatility that would go with that – as the recovery continues to rumble on, he says.
“Although there will be a short-term pull-back in equity markets that’s usually followed by a strong period because of the underlying positivity it means.”
Industrials in particular are likely to benefit from the economy’s strong fundamentals, he adds.
Japan is also a major bet for his funds, with almost a third of his global funds’ portfolios in the eastern giant’s market.
The top 10 largest global equity funds in the UK have about 4 per cent allocated to Japan, well under the benchmark 8 per cent, he says.
“There are many people in the UK missing out on that opportunity,” he explains.
Japan has underperformed for decades because of its deflationary woes, but prime minister Shinzo Abe and the Bank of Japan are determined to debauch the currency and jump-start inflation in the country, Geffen says.
“The lack of inflation is the key problem and solving that is a political issue.”
Shinzo’s retention of a super-majority at the weekend’s election gives him a strong mandate for economic reform.
Neptune is “significantly underweight” emerging markets, holding nothing in Russia, eastern Europe or South America.
The exceptions are India, which has had a spectacular 18 months, and China.
The MSCI India index is up about 58 per cent since the end of August 2013 and 22 per cent higher than two years ago.
Geffen says that it was interesting how long it took for investors to get on board with an investment and how much they miss out on due to the large gains early on in a market turn.