Neptune’s Geffen zero-weights UK on election concerns
The manager of the Neptune Global Equity, Global Alpha and Global Special Situations funds said he has no exposure to the UK within his global portfolios, a decision he is “not unhappy about” in the run-up to next May’s vote.
Explaining his reasoning, he said “I see ahead of us the most difficult election in several decades, with UKIP looking to take seats off all three major parties and Alex Salmond causing problems for Labour in Scotland. The markets do not like uncertainty and it is massively uncertain.”
Geffen has already suggested sterling could fall as low as $1.50 in the coming months as the US dollar continues to strengthen, and he said election jitters could push the pound down still further.
He joins the likes of Old Mutual Global Investors’ Richard Buxton in forecasting a tougher time for sterling as a result of political uncertainty.
Discussing the year ahead elsewhere, Geffen said he is striking a more positive note than many of his peers.
He said “We are more confident on global growth than our competitors and believe we are stepping up to expansion in 2015. We are looking at equities, as companies are in better shape than governments and bonds are looking expensive – which is not surprising given where [yields] are.”
Despite this, the manager’s funds are almost solely invested in just three countries: the US, Japan and India. He attributed this move to the US growth story, Japanese reflation and the long-term nature of the Indian recovery.
“In the US we will get strong wage growth in 2015. The [US Federal Reserve] will be cautious but once they start raising rates they will do so much more quickly than people expect. The dollar has been strong but it has not broken out yet.”
Geffen said US equities are at record highs “for good reason”, and pointed to industrials in particular as an area where value can still be found.
Assessing Japan, Geffen said that there are still many options open toJapanese policymakers in their quest to stimulate the economy.
“A Bank of Japan official pointed out to me that the UK government owns 40 per cent of bonds while the Japanese only own 20 per cent. There is still a long way for them to go. We are also seeing classic reflation of financial assets going on.
“Not many global funds in the UK will benefit from a Japanese resurgence. On average they [only have] 4 per cent in Japan and the index is 8 per cent. Neptune’s global funds have 36 per cent in Japan.”
Despite being less positive on emerging markets, the manager is favouring some stocks in China and, in particular, India.
Equity market strength in the latter will not be confined to the past 12 months’ 45 per cent rise, he said.
“India is not a one-year story, it is a five- and ten-year story and our global funds reflect that.
“In China we are tapping into internet growth as Chinese companies already have the Chinese internet tied up between them.”
The manager’s flagship Neptune Global Equity portfolio has returned 26.2 per cent over the three years to 5 December, underperforming the sector average return of 44.6 per cent, according to Morningstar.
Over one year, however, it has returned 12.5 per cent compared with a sector average return of 10.1 per cent.