Financials may prove to benefit from rising rates, said Jeffrey Roskell, co-portfolio manager at J.P. Morgan Asset Management (pictured, right).
‘Broadly, financials are beneficiaries of rising interest rates. Most trade at around 10 to 11 times earnings, yielding around 3.5% to 4.5%, and if interest rates go up, financials are likely to see net interest margins improve,’ he said.
While Roskell heads up the equity portion of the fund, Stephen Chang (pictured, left) heads up the fixed income portion of the fund. The duo have co-managed the JPMorgan Asia Pacific Income A Dis USD since June 2012.
On the bond side, Chang has an overweight in high-yield, noting, ‘high yield tends to do better as the economy recovers, so we’ve stayed in that sector.’
He adds that he is actively managing the bond risk through geographical allocation, with an overweight on Chinese bonds.
‘We’ve held on to issuances from Chinese property developers in tier one and tier two cities. Demand should continue to be strong, and supply hasn’t increased sufficiently to address it. But we have avoided tier three and four developers, because we think there are problems there, where we see overbuilding by local governments.’
Overweight equities, underweight bonds
Against their customised benchmark of 50% equities and 50% bonds, the portfolio has been firmly overweight equities.
‘We’ve been consistently 60% to 70% in equities,’ noted Roskell, who noted the equity portion consisted of around 90 stocks, with fairly high concentration in the top five positions.
Within the equities portion, Roskell has trimmed exposure to defensive sectors, in favour of cyclical sectors.
‘About a year ago we had around 70% of our equities in defensives, like REITs, telcos, utilities, and toll roads. Now it’s about 40%, and we’ve gone into sectors like banks, energy, and chemicals, which is up to around 50% of our equities, compared to 30% a year ago.’
Since the start of 2013 to end-October, the fund has returned 5.6% against the benchmark (50% MSCI AC Asia Pacific ex Japan Net + 50% J.P. Morgan Asia Credit Total) return of 2.5%.