Sheikh admits that Brexit followed by the Italian referendum has created “a valuation cushion”, meaning some European bank stocks are now undervalued having priced in the volatility of such events.
Most of the portfolio’s exposure to financial services is in the US, which he says have “bounced back aggressively” since Trump won the US election in early November.
The biggest change to the portfolio has been the reduction of equity by over 10% since mid-2015, in favour of fixed income, particularly US high yield and investment grade, says Schoenhaut, citing the “substantial overvaluation” of equities.
Taking the hedge off
A surprising feature of the fund is the use of derivatives, which Sheikh says is deployed “incredibly infrequently” as a hedge to “take the edge off interest rate risk”.
Schoenhaut is optimistic about the fund’s performance for the next 12 months, driven by expectations of stronger economic growth, whereas Sheikh is more muted in his outlook. “Interest rates will go up a bit and growth and inflation will probably go up a little bit higher than we would have previously thought,” he says.
“However, I don’t think people should confuse an uptick in a cyclical trend of growth with a structural change. Structural headwinds have really hampered global recovery over the past seven years, and it is not clear to me that they have disappeared.”
Biographies:
Michael Schoenhaut is a managing director and a portfolio manager on JP Morgan AM’s multi-asset solutions team, based in New York. He manages a global suite of multi-asset income funds, the SmartRetirement target date funds and traditional balanced strategies. An employee since 1997, Schoenhaut has held other positions within multi-asset solutions, including head of quantitative portfolio management.
Talib Sheikh is managing director and portfolio manager for the multi-asset solutions team, based in London. He is responsible for global macro portfolios, balanced and income portfolios and has managed balanced and tactical asset allocation overlay accounts since 2002. An employee since 1998, Sheikh was previously a portfolio manager in the derivatives implementation team
in London.
