Multi-Asset with David Vickers

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  • 07 mins 38 secs
David Vickers, Senior Portfolio Manager at Russell Investments joins Olga Hay to discuss the performance of multi-asset in Q3, his view on the market and where he is seeing opportunities looking forward to 2020.


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working investors find opportunities going forward in 2020 to discuss this. I'm joined today by David Vickers, senior Bartolo manager at Russell Investments. Thank you very much for coming today. So where does the opportunities in the coming year for the coming year? The whole process is driven by a three pronged approach which talks about the economic cycle. It talks about valuations and it talks about sentiments if I talked through that lens. So in terms of the cycle, economically at least we are seeing a pick up in economic activity and a potential stronger economic path. The consumer sector in the US, which had some fissures and cracks showing, actually has weathered the storm and has held up pretty well. Manufacturer, which was in a recession, still is in a recession, but the data is getting less bad. The rate of change is slowing and that's a good thing and data is surprising on the upside. Also, manufacturing cycles are many cycles within the larger cycle and so we think we're just starting to trough. Economic data is improving. As I said, auto sector data is improving Chinese and European data is improving orbit from a very low base, so we do expect this sick upswing at the same time when the market is digesting rate cuts from 17 of the 34 World Central Bank's central bank cuts typically come through the leg of 6 to 9 months. That Texan 20 twenties on improving economic backdrop at the same time as Montreal policy, has been looser. Working its way through, we think, leads to a healthier picture. Valuations are fair, too expensive, however, but they don't drive markets in the short term. The big wrinkle in Cavite All of this is the conversation is being had around trade. The market is starting to price in that President Trump and she will have a phase one deal. If that doesn't come to fruition on, we get continued uncertainty which had driven the manufacturing recession. Then I think the committee does continue to deteriorate and doesn't pick up a CZ. We expect the issue being around. That particular decision point is that all the economic incentives are aligned for both sides to come to a deal, but its political, which doesn't mean fundamentals always went out, and also we have the issue in Hong Kong and the bill that's working its way to President Trump's desk supporting the pro Democra Democratic rights for people of Hong Kong. So hot potato thrown into a very tense negotiation is very difficult to work out with any certainty as to how that progresses. But economically, at least from markets perspective based cases that equity markets and risk assets continue to move had orbit, not at the rates that we've seen in 2019. Today, how you factoring in the 2020 elections in the US, you could be dealing with a completely different president that we could on. It's interesting we're having an election clearing. You cares how politics usually doesn't drive financial markets. What's happening with Trump is probably a difference that hasn't happened before because we're really on top. The rhetoric with China that said the Chinese, if Elizabeth Warren becomes president, may longingly look back at Trump and the negotiations. So I think the election is a sideshow in of itself. However, one would anticipate that President Trump would get a deal done ahead of that election, and so the election himself is a catalyst for economic improvement if the deal gets done. If tariffs indeed get rolled back then the world could move up, as I said, because we think economic growth is starting to turn. So what should investors do? How should they be mitigating on their portfolios? There's potential geopolitical risks. Yeah, so there's a number things clearly, diversification. There's one future will come to pass, many a possible. And, as we said, that event risk is quite difficult to calculate. So diversification, but diversification with purpose, putting things into your portfolio that you that you know I have high conviction will perform in a given risk off scenario, not just having a whole lot of different things in your portfolio. Secondly, having a process that allows you to change your asset allocation guides you three markets as those for us cycle valuations sentences. Oh, three's those three pillar changes. You should change dress allocation and finally having conviction but no absolute conviction in a world full of uncertainty. So for us, when we think about how we should be positioned over the summer, we've pulled back are over waits to equities. Another risk assets. Because as this uncertainty grew, equity markets also rose. They're now starting to price in a phase one deal being completed on a little bit further on. That is a risk too far for us, because if it does get completed, we see a continuation of the outside. But if it doesn't, we see a bigger magnitude on the downside. So in a lover conviction environment, when there's a symmetry around, your potential returns not leaning wholeheartedly in one direction, and being diversified makes good sense to us. How your position at the moment, just a little bit more about that, Yeah. So in terms of diversification, if I think about we have a number of foreclosures, you can imagine. But it if I think about a average of medium kind of risk profile fund, we certainly have a healthy weight to equities. But it's spread across equities, convertible bonds, high yield bonds, infrastructure. So the equities sensitivity parties diversified. And then we have quite a lot of government bonds today, even though he perhaps perceive them to be bad value that they're for diversification purposes. We also today have not insignificant amounts of cash because whilst cash may not go up in a crisis, it certainly gives you the flexibility to add back toe assets. Azaz potentially for because we would like, think most investors are long term investors, not just for 12 months. And so having a bit of dry powder really helps smooth out that that particular journey. So where do you see the opportunities now as we stand, given that most markets are nearing all time highs, there aren't many absolute opportunities. The opportunities are relative. So within equity markets we have a preference for Europe in emerging markets because they are significantly cheaper than the U. S. And then really amongst other asset classes selling the bond complex, they are at all time high. So is that relativity that really at the minute is where the opportunities lie? There aren't really any absolute opportunities as we as we sit here today. Clearly, by the time this goes out in a couple of days, things may have changed, but that is we stand today. We're at all time highs and Ecklie markets spreads are very, very close down. It's all about the relativity off. Those cause less about the absolute opportunity talking about equities and 2020 different will finally see that rotation. Everybody's waiting for the valuable pick up. I think so. On the reason, I think so, is because the dispersion between value and growth has grown so significantly wider were two standard deviations away from normal times. Last time we were at these levels, it was back in there. The tech boom and crisis, where tech stocks has obviously ready very aggressively and value stocks lagged. We're back at those words again. Calling the timing point is difficult, and the problems days that the value stocks are very much caught up in the bond. Your conundrum. So if Bonnie was moved higher on growth does come through. We really expect value stocks toe start to outperform grave stocks, particularly growth stocks a pretty expensive and very narrow. So I would expect over the next number of years value to outperform. Calling it to the precise point is difficult for us. An Apple foes was starting to steadily lean in towards that value story because I think that's the best way Ginter £2 cost average into those stocks that look terribly cheap. Someone absolute level, but also quite a lot on a on a relative level. Absolutely, Chief David Vickers. Thank you. Thank you.