Global equity markets have been undergoing a rotation from growth stocks into value as fears of strong recovery-led inflation push up bond yields, but GAM’s Charles Hepworth doesn’t think the threat of inflation will persist in the long run.
Hepworth, investment director for GAM’s managed fund solutions, said: “We're going to see inflation bump over the next couple of quarters. It's going to be a higher headline inflation rate because of the base effects from last year, but I don't think there's going to be this persistently higher level of inflation that the bond markets have got really worried about in the short term.
“Our longer-term view is that this stagnation environment still persists and you're just going to have this hiccup in the in the next six months.”
He believes that once the bond market gets over the impending ‘inflation hiccup’, then there's going to be a reversion back to “more obvious” long-term stories.
“Growth hasn't just gone as an asset class,” he said. “It's a long-term secular trend that we've got there.”
As such, he shared three of his preferred growth-orientated equity strategies.
Naxitis Loomis Sayles US Equity Leaders
The first pick was a US equity strategy, namely the $1.5bn Natixis Loomis Sayles US Equity Leaders fund head up by FE fundinfo Alpha Manager Aziz Hamzaogullari.
“The team have built up a very credible track record in that space and you do need managers in the US that are really going to offer that kind of alpha potential, when there's not that many to be honest,” Hepworth said.
“A lot of managers do tend to hug around the index and provide either only modest alpha, or in the majority of cases negative alpha.”
He argued that it is important to find managers that are really offering something different from the index because the US equity space is so difficult to get excess return from.
“Every fund that gets into our monitored list has to have a demonstrable track record of generating alpha, month on month to be ideal, but really year on year,” he said. “This is one clearly easily does that.”
Over the last five years, Naxitis Loomis Sayles US Equity Leaders has delivered a total return of 150.06 per cent versus 114.36 per cent from the S&P 500 index benchmark and 110.78 per cent from the average fund in the IA North America sector.
Performance of the fund over 5yrs
Source: FE Analytics
The fund has an FE fundinfo Crown rating of four and an ongoing charges figure (OCF) of 1 per cent.
CC Japan Alpha
The next fund Hepworth highlighted was a Japanese equity strategy: the £774m CC Japan Alpha fund run by Coupland Cardiff’s Jonathan Dobson.
He said: “It's important for us to really lever up in areas that we think are going to do better in this global recovery and ultimately that means allocating to particular growth biases, but also particular regions that we think are going to benefit.”
Dobson used to manage Japanese equity for Jardine Fleming Asset Management and JP Morgan Fleming Asset Management but left in 2006 to join Coupland Cardiff.
Hepworth said: “It is very specialist, long track record of outperformance, long alpha generation and we’re very happy with that manager.
“Now, it's been a difficult economic time for Japan for the last 20 years or so, but the Japanese economy does have a very high delta to improving global growth.”
He pointed out that this could be seen in the fund’s performance over the last few months which has picked up considerably.
Over the last five years, CC Japan Alpha has delivered a total return of 109.03 per cent versus 71.82 per cent from the TOPIX index benchmark and 70.99 per cent from the average fund in the FO-Equity Japan sector.
Performance of the fund over 5yrs
Source: FE Analytics
The fund has an FE fundinfo Crown rating of four and has an ongoing charges figure (OCF) of 1.67 per cent.
GAM Star Disruptive Growth
The final fund Hepworth suggested was the $666m GAM Star Disruptive Growth fund, a global equity strategy run by FE fundinfo Alpha Manager Mark Hawtin.
He highlighted the long-term growth profile of the fund and the disruptive nature of the companies within the portfolio.
“It's not looking for the big incumbents in the tech space necessarily, it's looking for the real disruptors. All these stories are going to be the way of life for us over the next 10 years, and he's playing within that product suite and enterprise value,” he said.
“There's significant upside in their share price performance from here and it's a long-term story for us. It's going to be a key linchpin in the portfolio construction because now in this low growth world that we're in with secular stagnation - apart from this year where you're going to get massive bumps in GDP - if you look over a five-year view, the growth profile for the West doesn't look brilliant.
“So you've got to find opportunity sets out there and growth is clearly the only place at the moment that's offering that kind of high growth rate that we need.”
Over the last five years, GAM Star Disruptive Growth has delivered a total return of 290.45 per cent versus 129.99 per cent from the MSCI World Growth index benchmark and 90.94 per cent from the average fund in the IA Global sector.
Performance of the fund over 5yrs
Source: FE Analytics
The fund has an FE fundinfo Crown rating of four and an ongoing charges figure (OCF) of 1.07 per cent.