Emma Wall: Hello, and welcome to Morningstar. I'm Emma Wall and joining me today to give his three sector picks is David Jane, Manager of the Miton Cautious Multi Asset Fund.
Hello, David.
David Jane: Hello.
Wall: So, what's the first sector pick this morning?
Jane: Let's talk about healthcare. We all know that the population of the world is aging and clearly, you want to expose to benefit from that. But there's a huge amount of regulatory change going on in healthcare at the moment, whether it's changes around Brexit or Donald Trump with his healthcare changes.
So, the area of healthcare that we would like is medical technology, much less exposed to government's expenditure, exposed to changing technology and growth through that area, but also often the consumer himself makes the buying decision. If it's dental implants, if it's teeth straightening technology, hearing aid technology, those kinds of technologies are moving forward very quickly and it's consumers spending their own money, not governments.
Wall: And what's the second sector pick today?
Jane: Well, in order to complement what is a full-on growth argument at the moment, let's have a value story as well to provide some balance, maybe the market direction will change. And if you're going to invest in value areas, we would look at the materials sector, the resources sectors. Many of these areas following a sell-off through 2014-2015 are looking extremely low value. Good value now, 8 and 10 times earnings, decent dividend yields, even the oil sector. So, that would be our complementary pick.
Wall: That is an unpopular sector, however. I think you are pretty contrarian saying that. Because they did bounce through last year and people thought, okay, that's it; this is the new norm. But you think they have further to go?
Jane: Absolutely. In many ways, they've been out of favour right through 2017 so far as the heat went out of the Trump growth trade. These areas have lagged quite a lot recently. So, they are back looking good value again as far as we are concerned.
Wall: And what's the third and final sector?
Jane: Well, let's also think about bonds. A lot of people ask me when I'm out talking to clients, how you deal with the issue of, you know, we need to have exposure to fixed income. In that area where we find most attractive investments tends to be in shorter-dated corporate bonds. We know that there's a risk if the economy takes a turn for the worst. Hence, we stay very short-dated the bond's matureness. But we can get yields of 3s and 4s and sometimes even 5s at very short end of the bond market.
Wall: And is that in the U.K.? Is that globally?
Jane: We're tending to find the most value in the U.S. actually rather than the U.K. Obviously, bond yields in the U.K. and especially in Europe are absurdly low. Whereas, we've already seen a couple of rate rises in the States. So, at the short end, you can get much better yields.
Wall: And are you expecting more rate rises from the U.S.?
Jane: Clearly, yes. We wouldn't think that we're going to go back to the 4s and 5s that we used to see through the 80s, 90s and 2000s. Maybe the rates will peak just above 2 this cycle. But I think there's another one or two rate rises over the next year or so.
Wall: David, thank you very much.
Jane: Thank you.
Wall: This is Emma Wall for Morningstar. Thank you for watching.
