Head of multi-asset investment at BMO Global Asset Management (GAM) and portfolio manager of the Universal MAP fund range, Paul Niven, has said he remains bullish on risk assets despite widespread fears we are nearing the end of the market cycle, and in particular, is favouring US equities.
Although many investment professionals have said we are nearing the end of a multi-decade bull run, the portfolio manager told Investment Week he does not think a recession is "on the horizon in the next year" and as a result the range of funds will maintain "a pro-risk stance on equities" in the short- to medium-term. He added he prefers "equity to credit at this point in the cycle".
As of 31 May 2019, the three funds held majority overall weightings in North American equities at 29.4%, 24.2% and 19.2% in Growth, Balanced and Cautious respectively. In addition, Growth and Balanced hold respective weightings to UK equities of 23.4% and 18.4%.
Niven said: "An equity stance has served us well. If you look beyond the yield curve the signs are much less troubling."
That said, he does not recommend "betting the ranch on equities" completely, given some valuations are not as attractive as they have been historically.
As such, the head of multi-asset combines his equity exposure with the likes of UK gilts, corporate bonds and high yield debt to varying degrees, depending on the risk profile of the portfolio.
He added: "We have become a little bit lower risk in some of our [equity] positions year-to-date, as a function of the strength of equity markets that we have seen."
In terms of the fixed income exposure across the portfolios, Niven is also still exercising a degree of caution in response to global economic uncertainty. As such, he has reduced duration across the funds to counteract the possibility of an increase in interest rates.
He explained his short-term view would be the macro cycle is "quite extended" and pointed out unemployment is at low levels, yet companies are still operating with high profit margins.
Nonetheless, he argued there are not sufficient signals yet the global economy is in the final stages of the economic expansion and further stated economic cycles and bull markets do not die of old age, instead they are "killed" by "overly aggressive" policymakers who tighten monetary policy in ways such as raising interest rates, which in turn stifles growth and can incite a downturn.
"If you believe that, which I do, then the cycle is still positive in terms of the backdrop for risk assets and equities," he said.
"One reason it's been a great environment for equity investors has been corporate earnings have actually seen strong growth and labour has not.
"The economic pie is growing, not that aggressively, but it is growing and the corporate sector is taking more of that pie than it has historically compared to labour."