David Jane, manager of Miton’s multi-asset fund range explains why he is looking ta India, South Africa and agriculture.
A major plank of our strategy is to have a range of diversified macro and thematic ideas in our portfolios. At present, there is a very powerful rotation under way in the market’s mindset, away from the disinflationary and QE dominated era to an expansionary economic environment. We have benefited greatly from this move, having had a very low exposure to bond proxies and a short duration in our bond portfolios, while at the same time being exposed to sectors that benefit from rising inflation such as resources and basic materials.
When a single macro dynamic becomes dominant, we like to look for opportunities which might be independent of the dominant macro driver in order to diversify the funds. Within the themes we look for good supportive fundamental data but with a narrative which is less positive in the short term, combined with emerging price momentum. To be additive to the portfolio, the themes need to be distinct from the core macro ideas but not conflicting, meaning they must not do badly if we are right on our major views. For this reason, while many of our themes have been around for a long period, the way we implement them can change to reflect a dynamic macro background.
We have looked at some of the areas of our portfolios that might be broadly independent of the very dominant global growth and reflation theme that dominates markets at the moment, but at the same time can deliver returns.
One such theme is the Indian domestic economy, where Modi’s economic reforms and a young workforce suggest strong growth for years to come. The Indian economy is less integrated into the global trade system than most other emerging markets and so doesn’t need a strong US/Chinese economy to do well. While performance has been very strong, and therefore we have naturally reduced our positions, we remain a long-term bull of the potential for India.
A recently added theme is the South African domestic market. Long regarded as too risky in the Zuma era, as it became clear that Zuma would be replaced by a much more respectable and market friendly Ramaphosa, we added a small position in government bonds and equity. Within equity, we bought the domestic stocks and banks which would benefit from a better domestic economy, rather than international mining stocks. Early signs are that Ramaphosa is getting to grips with the crony capitalism which has come to dominate South Africa and the market is reacting positively through the currency, equity market and the bond yields.
Another recently added theme is agricultural which we have followed for some time. Global demand for food continues to rise as incomes and populations grow, and with limited natural resources, productivity enhancements are needed. Agricultural prices have been falling for some time, despite other resource prices having risen, but now appear to be rising again. As they rise, demand for machinery and supplies typically also rises. We have added a range of fertiliser and machinery companies as well as more direct plays through aquaculture and farmland, in a range of regions. This theme should benefit from a broadly rising inflation environment but add further diversity to the funds.
In coming weeks, we expect to develop further on one or more of the newly added themes, and also continue to seek out more diversifying themes in order to reduce dependence on the very dominant and powerful macro trend.
David Jane is manager of Miton’s multi-asset fund range.
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