This view on economic growth has not extended to emerging markets and Asia, sectors on which McIntosh is agnostic. For cyclical markets, he prefers Europe and Japan. He believes there are structural problems across some emerging markets and foresees problems with currency.
The pro-cyclical view does, however, incorporate a significant underweight on fixed income. The group’s portfolios have been negative on bonds for some time and McIntosh sees no reason to change in spite of the recent spike in yields. In general, he favours sovereign over corporate bonds and has a higher weighting in conventional gilts, having recently reduced index-linked gilts, as they became more expensive.
He says: “We see little or no prospect of interest rate rises and this is supportive of government bonds, even if yields aren’t particularly attractive. In corporate bonds, there has been a lot of issuance but our negative view is more of a relative value trade rather than any concerns over credit risk.
“We don’t expect a significant rise in defaults. We had a higher weighting in corporate bonds, which we reduced because they started to look well-priced.”
Reality bites
McIntosh labels his investment approach as pragmatic, rather than having a natural skew to value or growth. He says: “We aim to be active investors. We look at long-term trends and make strategic asset allocation calls. We also try to add value through stock selection, rather than simply trying to give the lowest priced solution using trackers.
“We pick stocks ourselves and that gives us control. However, we will invest in funds as well, for smaller portfolios.”
All the group’s portfolios will be reflective of their view of the world and point in the same direction. The group has discretionary and managed portfolio services, plus a multi-asset proposition. It also has a traditional stockbroking service.
McIntosh says: “We’re not style-driven, not growth or value. We are quite top-down. If we have a positive view of the world, it will guide us in terms of sectors. Cyclical versus defensives, for example, was an easy call.
“We’re not contrarian, though we are a little concerned that our reflation trade is consensual, but we are sticking with our view along with the strong dollar. We are not trying to be different just for the sake of it and we also don’t mind being a little early.
“We consider ourselves open-minded and not dogmatic. We were big supporters of defensive and consumer staples sectors for years but we recently decided there were better prospects elsewhere.”
McIntosh may be a firm supporter of the reflation trade but he remains aware of the potential for a crisis. This means the Quilter portfolios seem to be an eclectic mix of gilts, gold and pro-cyclical equities. He may be positioned for ‘Trump-lite’ but the portfolios also offer some protection should ‘dark Donald’ rear his head.
