Emma Wall: Hello, and welcome to the Morningstar series, "Why Should I Invest With You?" I'm Emma Wall and I'm joined today by Nick Peters, Manager of the Fidelity Multi Asset Growth Fund.
Hi, Nick.
Nick Peters: Hi.
Wall: So, we're coming to the end of a year and we're using the opportunity to look into 2017, which looks set to be a pretty interesting year for investors. I thought we'd start with one of the key themes, which is, inflation, partly because of Trump, partly because of commodity prices, but we are thinking it's going to be an inflationary year?
Peters: And we are of a similar opinion. We've seen and we've seen bond yields stop backing up. Now, treasuries are around 2.3%. Now, our feeling is actually that it's likely to take a breather whilst people try and digest what the policies are that come out of the U.S. and energy prices have had a strong run and so we think they will level off for a while as well.
Wall: Is it a concern as a fund manager, inflation, or is it an opportunity?
Peters: Inflation around low levels, 2% to 3%, is good. If we see inflation picking up from those sort of levels, then we start to worry because you will certainly see bonds selling off and you're likely to see equities selling off as well. So, yeah, around 2% to 3%, we're very happy with that.
Wall: Looking then at the type of equities that you expect to do well in 2017, there has been a shift in recent months away from growth stocks and into value and indeed these sort of bond proxies have started to do poorly after years of fantastic returns. So, where are you seeing the opportunities in 2017 when it comes to equity themes?
Peters: Yeah. So, you're absolutely right. We've seen that rotation and the question is, will that continue from here. And again, the rotation has been so fierce that we think we'll see a breather. But my personal view is, we will see the value style have a second run, if you like. So, financials, basic materials, energy, they still look cheap relative to those long-duration stocks that you mentioned. So, yeah, we think that value will continue to run in 2017.
Wall: And it seems from what you are saying today that the longer-term theme of 2017 may not be the shorter-term theme. There may be a bit of a breather in particular trends and that all lends itself to the idea that it's going to be a volatile year and perhaps the things that you're holding for the medium to long term maybe compelling but expected to be a bumpy ride?
Peters: I think it will be a bumpy ride. But I think – so, my position at the moment is to be overweight equities and underweight bonds and I think that – I'm pretty comfortable that that will work well throughout the year. The question is, how volatile and can I take advantage of sell-offs or if stocks or asset classes run strongly, can I take profits? And that's what I'll be looking for during the year.
Wall: And what sort of triggers do you think will cause this volatility because there are a few events coming up in 2017, aren't there?
Peters: Yeah. So, that will vary from region to region. Within equities, I think, post January, once we see the inauguration of Donald Trump, then we will really see what sort of policies he will look to introduce and that will obviously throw up opportunities. In Europe, it's all about politics as well. We've got French, German elections, Dutch elections.
And so, I'm actually underweight Europe because of the volatility we're likely to see. And actually, Japan is an area where I'm overweight because I think there's valuation support and actually a far cleaner picture from both the micro and a macro perspective.
Wall: Nick, thank you very much.
Peters: Pleasure.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
