The top five contrarian plays of the year so far
By Kristen McGachey, 16 Feb 17
From betting on Europe over the US to sticking by emerging market debt, we look at five ways portfolio managers have stepped outside the box early on in 2017.
Though many investors are disavowing emerging market debt in the era of Trump, Seven Investment Management’s Ben Kumar has remained loyal to the asset class.
Not only is it “dumb to try to predict what Donald Trump will do” with policies that affect the EM world like the North American Free Trade Agreement (Nafta), but investors’ anxieties about volatility have been somewhat blown out of proportion, said Kumar.
“You look at the Mexican peso or bond now and it has moved back nearly all the way to where it was before Donald Trump was elected. The kneejerk reaction has almost entirely dissipated which is pretty telling that the market priced something in that has not yet come to pass.
“In general, emerging market currencies are thought to be quite risky, but that sure as hell describes the pound at the moment. The pound is not behaving like a developed currency at all so holding EM currency carries much less risk comparably than it did even two years ago.”
And the beauty of investing in EM debt in local currency terms is “you are getting yields of 5.5% to 6.5%, which protects against short-term volatility,” he argued.
7IM’s balanced fund maintains a slight overweight (circa 8%) toward EM debt currently.
Tags: Bonds
