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PROTECTION PROGRAMME

Cautious on equities and fixed income, Sheldon MacDonald prefers funds with high conviction, as he seeks stability over the long term rather than quick gains on the upside

If 2016 taught investors anything it was that the market’s response to macroeconomic events is unpredictable at best. History tells us Donald Trump’s election and the Brexit vote should have derailed markets, but they proved remarkably resilient.

In a similar spirit, a reflationary environment might be thought to favour equities but Sheldon MacDonald, deputy chief investment officer at Architas and manager of the group’s Blended range, thinks this may not be the case.

MacDonald is a believer in the reflation trade. He says: “We accept the general wisdom that the world is becoming a better place and inflation expectations are improving. While people are laying that at Trump’s door, the underlying conditions were there already in the form of stronger growth and lower unemployment.”

However, MacDonald does not share the prevailing wisdom that this will be good for equities. He says: “Valuations are certainly not cheap. They look reasonable relative to bonds but not on an absolute level, and the level of uncertainty gives us pause for thought. There is uncertainty in the US over Trump and what he will do.

“In Europe, populism is gaining traction: Marine Le Pen is looking a lot more electable. We also don’t know what shape or form Brexit will take. There are also uncertainties on corporate earnings. Valuations are currently discounting higher earnings and we need to see them start to come through.”

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About International Adviser

As HM Revenue & Customs clamps down on the Qrops transfer market with a 25% tax charge, technical guru Brendan Harper gives his verdict on the latest international pension developments, The Fry Group’s top financial advisers in Singapore and Hong Kong talk about their fee-based approach and Old Mutual International’s Peter Kenny explains their new focus on high net worth clients.
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