“Brexit has put sterling under pressure but it could unwind very quickly in the case of a ‘remain’ vote. We’re not trying to be too clever with it. We do take currency into consideration and will hedge, but we are dealing with it by favouring large cap in the UK.”
Elsewhere, he believes the US is treading a fine line. The market has rebounded this year and companies need to meet their earnings expectations. If earnings come through, the market can probably move higher. If they don’t, he believes stock market valuations look very stretched. As such, he is underweight across the portfolios.
In Europe, he believes the ECB may actually have done too much quantitative easing rather than too little. He says: “We don’t believe the economy is as bad as the central bankers portray.” If anything, quantitative easing may create the impression that the economy is weaker than it is. He is neutralon Europe and Japan.
Although they tend to have a relatively small weighting in emerging markets, they have tentatively started to look for opportunities there on the basis that a weakening USD and more dovish central banks should support the sector.
He believes diversification will be key in this environment. Within funds, it means holding a range of manager styles, but it also means being diversified across asset classes. “We are genuinely multi-asset in our approachand, as such, our equity weighting is naturally a little lower than our peer group. We want to ensure our portfolios are properly diversified and providing good risk-adjusted return.
”This means incorporating areas such as structured products. Georgiadis says: “We usually have sufficient demand that we can ask banks to create them for us. It is important to spread counterparty risk, so we’ll use a range of them in our client portfolios. If markets are not going to make a lot of progress, then the auto-calls will pay out if markets are flat.”
Pooling property
Georgiadis says that sourcing income remains a problem for many of his clients. Here, too, diversification is an important way of dealing with the problem. Outside equity income and bonds, they will use commercial property in portfolios. He says that while he is well aware of the risks associated with commercial property, and the weight of opinion suggesting commercial property is rolling over, he still believes it is worth holding for yield.
He adds: “Liquidity is a problem and we are always mindful of the liquidity constraints associated with both infrastructure and commercial property. We also hold infrastructure for yield. For us, it provides the comfort of a government-backed income.”
The group will also look at more esoteric areas such as renewables, peer-to-peer investments and asset leasing. These form small parts of the group’s overall portfolios but can offer some pick-up on the yield.
The group’s philosophy is pragmatic rather than being skewed to income or growth, based on business cycle decisions. Georgiadis says: “We accept different assets will perform well at different stages of the business cycle.” It is a philosophy that has helped Cazenove avoid some of the savage extremes in markets seen over the past few years, and it is one, Georgiadis believes, that will help them navigate the turbulent markets of the coming months.
