This year has been characterised by a risk on environment where volatility has really pushed singificant activity in the multi-strategy space, according to Invesco’s Richard Batty.
‘Volatility has made us buy the Vix indexes, which has continued to grind lower bringing us into a pretty benign environment,' he told Citywire Selector.
Citywire + rated Batty, who co-runs the €6.6 billion Invesco Global Targeted Returns fund, said the current environment has helped equity markets appreciate notably, but added that credit markets have also done well this year.
'High yield credit and lower yield spreads have tightened so have investments grade. It’s partly down to a profits recovery, we have seen a decent recovery in Japan (2.44% of the portfolio), Europe (10.38%), and the US (8.65%) has been okay but not as good as usual.
'EMs and Asia have also seen some profit growth as well which have been strong drivers of the stock market. Hong Kong is up 30% this year, these are big market moves.'
Batty said the big moves in stock markets across the globe can be put down to the prominence of technology companies.
'It’s down to the re-rating of these companies and our anticipation is that some of the markets are just starting to shine through. Amazon has only just started to make money in the last few years and the market has been prepared to put big premiums on stocks like this.'
Batty has various currency bets in the fund, such as US dollar vs Canadian dollar and US dollar vs euro, and said these positions haven’t been easy to hold.
'The dollar has come under pressure and that has been a bit problematic for us. We have had long dollar positions and there has been some very sharp moves. Q2 and Q3 combined has been one of the sharpest dollar falls since 2008/2009.
'That’s not justified in our view. But as the US economy begins to recover, the dollar is reasonably priced. A lot of this is good news given how low the Vix is. The big move in the dollar has pulled some investors out, which, admittedly, hasn’t helped us.'
The risks of political tension have also had a bad effect on the market, Batty said, especially when it comes to currency moves.
'The Nafta negotiations have been quite problematic for countries like Mexico, hindering currencies such as the peso. Political risk can really be unhelpful for portfolios that hold these sorts of assets in the short term. However, many of these markets are now offering good value opportunities.
'From an equity and credit perspective it has been a benign year, as corporate profits growth has been robust. However, we worry that volatility is unsustainably too low across a range of asset markets, so we want to hold it as an asset class in our portfolio, as it can protect performance,' he added.
Over the three years to the end of September 2017, Batty returned 6.37% in euro terms in the multi-strategy sector. This compares with a 5.59% return by the average manager over the same time period.