Emerging markets multi-asset outperformer Morgan Harting increased his equity position from 60% to 80% over the course of 2017.
Harting has moved the AB Emerging Markets Multi-Asset Portfolio fund to capitalize on the equity rally and as part of a shift away from a more cautious stance.
Speaking to sister site Citywire Selector, the Citywire + rated manager said: ‘Back in 2016 we witnessed a general shock to capital markets following the US presidential elections that brought forward concerns about trade protectionism.
‘Amid peaking volatility at the time we maintained the lower equity exposure that we increased in order to participate in a rising equity market.’
Harting often uses his bond exposure, which sits at 20%, as a diversification tool. Looking ahead, he said this will become even more valuable this year when volatility increases.
‘Over the last couple of years you could invest in the largest most volatile stocks in emerging markets and your returns would constantly go up. This year, however, is going to be a bumpier ride as policy makers start to remove their extraordinary support.’
Harting tends to avoid volatile holdings but still owns Brazilian and Russian companies, such as Petrobras and Lukoil, which are sensitive to the oil price movements.
To offset this risk Harting invests in bonds with limited sensitivity to the commodity, such as a recently-opened position in Dominican Republic sovereign bonds.
‘Dominican Republic imports oil, so when its price goes down the value of the country’s bonds tends to go up. This is also the time when air travel becomes cheaper and more people are going there on holiday, which gives the local economy a boost.’
Harting has also recently bought more Russian stocks, which make up 6% of his portfolio at the moment. He highlighted Lukoil as particularly attractive given the stock’s valuation being almost half the EM average, while its dividend is more than twice the norm.
‘The firm also has a strong franchise outside of Russia. You can walk down the street in Manhattan and find a Lukoil gas station.’
Harting said the privately-owned company also has less risk of government intervention. ‘We know that the risk of the government action is acute but we believe that Lukoil is better positioned in that regard than other companies.’