NNIP’s head of multi-asset, Ewout Van Schaick, has defended holding one-fifth of his fund in cash and liquidity products as it is currently not the right time to invest in bonds.
‘Right now we are in an environment where from time to time we don’t like bonds and that means you have to keep your money on the sidelines, but we are still constructive on the risky equity market’ he told Citywire Selector.
Citywire + rated Van Schaick, who co-runs the NN (L) First Class Multi-Asset fund, which has €909 million in its whole strategy, currently has 19.9% in cash and money market products.
Van Schaick said investors are becoming more open to such strategies due to the current market environment. 'Being underweight bonds, even though everyone expects interest rates to rise is generally quite accepted at the moment.
‘It’s actually very costly if you are only getting 60-65bps from a ten-year German bund, if you put your money in a cash account you will probably pay -70bps and if you put your money in a short-term money market deposit you have -40. It’s quite a big decision, you need to be convinced that you can’t make money elsewhere.’
Van Schaick said he aimed to prevent losses and said he has recently started to reallocate cash back into bonds.
'We do see more volatility in the market and the curve in continental Europe is very very steep. We prefer local EMD at the moment and we are allocating to that space. There has been a shift for us from hard currency to local and that is an attractive area in emerging markets.
'As well as that we see dollar weakness, yield levels in emerging market currencies are still relatively high, so you have a carry and could actually benefit from the continued tightening, especially versus more developed markets.'
On currencies, Van Schaick said the team can allocate via an index or through individual currency allocations and likes to keep this exposure diversified.
'Generally, I prefer the Latin names or the high yielding Asian names because they have a higher return. On the other hand, in the last year or so, Eastern European currencies have been quite attractive.
'EM currencies are always evaluated versus the dollar and the dollar was so weak that EM strength versus the dollar is not actually translating into euro gains. That didn’t happen with Eastern European currencies because the majority of them are euro-linked, rather than dollar.'
Schaick highlighted the Polish zloty and the Romanian leu as names which are more euro linked and have performed well.
‘It’s an area where the spreads are tightening versus euro-core bonds which are quite attractive. The EM theme right now is a really common theme, but I don’t think it’s for a specific area.
'The theme you play is synchronised global growth and of course in this environment, you expect EM growth to be more attractive than developed growth.
Over the three years to the end of February 2018, the NN (L) First Class Multi-Asset fund returned 0.14% in euro terms. This compares with a 4.68% rise by its Citywire-assigned benchmark, the LCI MSCI World Free/JP Morgan GBI (50:50), over the same time period.