Managers adapt to the prospect of a change in monetary policy

Fund manager Hermes said that after a decade of ultra-loose monetary conditions, three major central banks in the US, Europe and the UK could be about to start normalising policy.

Hermes co-head of credit, Fraser Lundie, commented: “As we emerge from this central bank-induced bubble, we will use our mandate to invest worldwide and throughout capital structures to access an expansive set of opportunities and sources of liquidity. This includes applying the defensive strategies that are deployed in our Hermes Multi Strategy Credit and Absolute Return Credit capabilities.”

Emerging markets are in better shape to cope with the withdrawal of US stimulus than during the 2013 “taper tantrum” according to Hermes head of emerging markets, Gary Greenberg. “While inflationary pressures are picking up, inflation in emerging markets is trending below 5% – compared with more than 20% in the 1990s – thanks to improved policymaking. As such, a shift in US monetary policy is not currently a major concern for emerging markets.”

Looking at global equities, Lewis Grant, senior portfolio manager, global equities at Hermes, said that it is extremely hard to predict the impact of macro factors on financial markets. However, Grant said that defensive, or bond-proxy, stocks have become overvalued, and are likely losers. “Banks, insurers, brokerages and asset managers should be among the winners, given that they tend to perform well as interest rates rise. As we inch towards normalisation, our portfolios remain exposed to a range of well-managed companies in this sector, particularly retail-focused.”