Emma Wall: Hello, and welcome to Morningstar. I'm Emma Wall and I'm joined today by David Jane, manager of the Miton Cautious Multi Asset Fund, to give his three sector picks.
Hi, David.
David Jane: Good morning, Emma.
Wall: What's the first sector today?
Jane: Let's talk about emerging markets today. For the last four or five years as a fund we have had very little exposure to emerging markets. But more recently, we've introduced that exposure again. Two broad-based reasons to support that. Firstly, emerging markets have largely been held back by the slowdown in China, the weakness in the resources sector.
Many of them are very dependent on those areas. And broadly, I think, it's fair to say that the slowdown in China has slowed and the resources decline has declined and therefore, those two big negatives are no longer faced with. At the same time, you've always had the strong underlying demographic growth in those emerging markets and the dynamism of those emerging markets. So, again, that's an area now we can look at again and we've been introducing Southeast Asia and Latin America back into our portfolio.
Wall: Emerging markets seem to a real divider at the moment. There are some people who are saying, well, they've been beaten down; you've got some quality assets that are cheap. And you've got other people that say, China has further to slow; look at what China did last summer as an example of kind of they are not ready to enter the global market. Where do you sit on those sort of positives and negatives?
Jane: Well, broadly based around China – we wouldn't say we're positive on China. We have no exposure to China. But I think it's reasonable to say that their stock market collapse has largely played out. We saw a classic stock market bubble with a classic bursting of that bubble, find a level, stabilize. Here we are now largely six or eight months beyond the bottom and it looks quite economically again, okay, you can be cynical and say they are embarking on the old policy of export-led infrastructure investment, capital investment-led growth. But that's sort of fine.
We don't have to invest there. We can look at emerging markets with strong domestic spending such as India, largely independent of China, the Philippines, other parts of Southeast Asia and Latin America where their growth patterns are independent of what's going on in China.
Wall: What's the second sector pick?
Jane: Let's talk about U.S. corporate bonds. We've had a period now of broad intervention in U.K. and now in Europe as well with quantitative easing, extraordinarily low government bond yields which means now the yields on European and U.K. corporate bonds are now looking so absurdly low, there's little opportunity for capital gain and very little yield either.
At the same time, if you look over in the States, we've got a relatively strongly growing economy, relatively high government bond yields which the corporate bond yields are based upon. So, we can still find yields of 4% or even 5% in the corporate bonds in the U.S. with a benign economic background. That looks dramatically more attractive to me than what I see in Europe.
Wall: And your third sector pick is one that's favorite with our readers and that's gold, isn't it?
Jane: Yeah, we always need to talk about gold in a mixed asset portfolio. There are times you wonder why you own it and there are times you think that's why I own it. And in this period where we've had massive government intervention in the fiat money markets, in the trust-based markets, can we really trust money? Clearly, we do.
Those times when we don't, when we think government intervention is going to break down, maybe inflation is going to come back, we have our ultimate insurance in the portfolio in the gold and we're very grateful for it at the times when we're grateful for it and the rest of the time we forget about it.
Wall: David, thank you very much.
Jane: Thanks very much, Emma.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
