As central banks continue to shift policy, is currency key for 2018? In this round-up, Citywire Selector collates the best comments from Alternative Ucits managers to get to grips with their thinking for the year ahead.
Franklin Templeton’s K2 Advisors team, which is comprised of Citywire AAA-rated trio David Saunders, Brooks Ritchey and Robert Christian think 2018 will offer heightened investor focus on major central bank policies, pushing currencies to offer meaningful performance dispersion over the coming months.
‘Commodities also stand to benefit from continued economic expansion and a potential reversion to higher historical prices. We believe commodity prices should slowly grind higher in 2018, further strengthened by investors returning their focus to fundamentals as opposed to short-term concerns.
‘The likelihood of a weak and relatively stable US dollar in the first half of 2018, as well as potential supply disruptions from political events in Venezuela and Africa, could also lift commodity prices.’
Elsewhere the team said long-short equity is likely to see support from rising interest rates in 2018.
‘Fundamentally weak companies typically face increased pressures on their financials in a rising interest-rate environment, allowing managers to potentially benefit when they can correctly pick winners while hedging out general market risks through short positions.’
Greed versus need
Elsewhere in the Alt Ucits space, still with a focus on the currency market, Jupiter’s head of absolute return strategy, James Clunie, is focusing his attentions on the speculative fervour surrounding one of the world’s most debated cryptocurrencies, Bitcoin.
‘Risks might be building in markets, the speculative fervour surrounding Bitcoin, for example, and recent excesses in the art market where a painting sold for $450 million, which may or may not have been produced by Leonardo da Vinci.
‘However, what is unique to this late-cycle phase is that greed has been a big player to a character created by years of central bank liquidity: need. For years, pension funds have been forced to find bond-like assets against which they can match long-term liabilities.’
Similarly, Clunie said ETFs and index funds have been forced buyers of assets regardless of price, as investors have poured into such funds.
‘In my view, need seems to be what’s driving a lot of behaviour. Unlike greed, which involves an investment choice, need always results in a transaction.
‘For me, that is the real source of the fragility in the current market. With the US Federal Reserve and central banks in the UK and Europe starting to withdraw support after years of quantitative easing and low-interest rates, it seems that it is only a matter of time before some of these fragilities come to the fore.’