Investors may have to look past short-term uncertainty and ‘noise’ in markets and focus instead on fundamentals, according to Liontrust Asset Management’s John Husselbee. 
The Liontrust multi-asset head said the possibility of impeachment for US president Donald Trump, Brexit and tariffs are all headline-grabbing stories as we head into the autumn months.
Meanwhile, asset classes are not necessarily reacting to rising interest rates and the withdrawal of quantitative easing (QE) in ways that many forecasters had expected.
All this means that “anyone who was hoping the heatwave over the summer would have burnt away the clouds of uncertainty will have been disappointed,” said veteran investor Husselbee (pictured).
This unpredictability has extended to the stock market, where the US has continued to outperform while the emerging markets have lagged, as the below chart shows.
Performance of indices over YTD
Source: FE Analytics
He said: “The ongoing strength of the US and the emerging market malaise has stretched through the summer, being exacerbated by the recent situation in Turkey.
“For me, however – imagining myself back on the beach in Spain – this is the investing equivalent of a jellyfish sting: admittedly painful in the short term but unlikely to do lasting damage.”
Turkey will certainly have caught the eye of investors and is likely a significant reason why the MSCI Emerging Markets index has underperformed so materially.
However, Husselbee said that it is another example of “noise trumping fundamentals”, as there remains a great deal of opportunity in emerging markets outside of Turkey – a relatively small part of the benchmark.
The manager said: “The country’s worsening relations with the US have sparked a sharp sell-off and exposed weaknesses such as large external debt and inflation, hidden from view by widespread liquidity in recent years.
“Weaker global growth, combined with higher interest rates and a strengthening US dollar, have laid bare vulnerabilities in countries reliant on external borrowing and large current account deficits, such as Turkey and Argentina.”
However, there are many other emerging markets, especially in Asia, that have continued on the path towards sustainable long-term growth, he noted.
And there is little risk that what has happened to Turkey will spill over into the rest of the emerging markets.
Despite this, the market appears to be tarring the whole asset class with the same brush, based on the problems of its weakest constituents.
“For investors prepared to do the work and look beyond the surface, that represents a significant opportunity,” Husselbee said.
As such, the manager has taken the weakness over the summer as an opportunity to top up his weighting towards target levels in his low, medium and high-risk portfolios.
“Buy low, sell high is perhaps the oldest and certainly the simplest piece of investment advice, but it is also one of the hardest to put into practice,” Husselbee said.
“The evidence of history points to the importance of investing for the long term and staying invested through the ups and downs of markets and political events.”
In emerging markets, alongside adding to the Fidelity Index Emerging Markets passive fund, he has topped up the £2.5bn Stewart Investors Global Emerging Markets Leaders fund, which sits in the IA Specialist sector.
Managed by Ashish Swarup and Tom Prew since taking over from Jonathan Asante in July 2016, the fund has beaten the MSCI Emerging Markets index over the past decade, although it has lagged over three years.
Performance of fund vs benchmark over 10yrs
Source: FE Analytics
The managers look for well-run companies that has pricing power and are focused on the large- and mid-cap end of the market. It has a yield of 1.21 per cent and a clean ongoing charges figure (OCF) of 0.92 per cent.
Husselbee has also topped up his holding in Artemis Global Emerging Markets, which he said “uses a SmartGARP [growth at a reasonable price] investment process, which has been developed by Artemis over many years”.
Headed up by Peter Saacke and Raheel Altaf since its launch in 2015, the fund has returned 32 per cent since inception, beating both the average peer in the IA Global Emerging Markets sector and the MSCI benchmark.
The £163m portfolio’s largest overweight positions are in China and Russia, while its largest underweights are in Korea, Taiwan and India.
By sector, its largest overweights are in energy, utilities and construction, and it has relatively less exposure to the more widely owned segments of the markets, such as technology. The fund has a 2.02 per cent yield and an OCF of 1 per cent.
Conversely, the manager has cut back exposure to more expensive developed markets, primarily the US and large cap UK equites, while also adding to his allocation of cheaper European stocks.
Huseslbee said: “In Europe we have topped up our tracker as well as our favoured active funds, Jupiter European and JOHCM Continental European, although we have maintained a tilt towards value investing.”
Five FE Crown-rated Jupiter European is managed by FE Alpha Manager Alexander Darwall, who looks for companies with global, high-quality companies with pricing power – typically avoiding cyclical sectors.
Over the last decade it has been the best performer in the IA Europe Excluding UK sector, returning 300.03 per cent to investors. The £5.8bn fund has an OCF of 1.03 per cent.
Performance of funds vs sector over 10yrs
Source: FE Analytics
Paul Wild’s JOHCM Continental European has returned 152.05 per cent – another top quartile performer in the sector.
He uses a top-down macro call first to create sector weightings, although these are somewhat benchmark aware and therefore never too far from the index, before individually selecting the best stocks available.
This has helped it to weather periods of weak performance for the index, with the fund performing well relative to its peers in the down years of 2008, 2011 and 2014. The £1.7bn fund has an OCF of 0.83 per cent.