April 2016
Schroders
Talking Point
Garth Taljard’s Interview on the Market
Outlook at CNBC
Garth Taljard, Head of Multi-Asset Product
Bernie Lo, Anchor, CNBC
Bernie Lo: Garth Taljard is the Head of Multi-Asset Products in Asia at Schroders Asia; he joins us around the desk
for a quick chat here. Garth, good morning to you. How are you?
Garth Taljard: Morning. Good thanks.
Bernie Lo: Are you seeing more volatility in the markets? I mean we had a… We went down like it was a rapid
descent at the beginning of the year. Then we went up…
Garth Taljard: Yeah.
Bernie Lo: …as March rolled around. Here we are in April. What are April showers going to bring us in… There's a
question for you.
Garth Taljard: Well, it certainly seems like some good volatility for a change. And obviously in the first part of the year
before Chinese New Year there were a lot of concerns as to what was happening, particularly coming out of China. That
seems to have stabilised for now and the market's looking for excuses to go up.
Bernie Lo: So you think that China is off the table as a trouble child or do you think we're waiting for the next big set of
numbers or some sort of an index with a 40 number in front of it, and then we're going to start the hand-wringing all over
again?
Garth Taljard: We think it's stabilised for now. Markets are focusing on other issues. There are lots of big central bank
decisions coming up, we've just had the Fed minutes last night; clearly they're in a tough position. Then we've got BoJ
and ECB later this month.
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Bernie Lo: What in the world of multi-asset products is SECI right now? What's a hot button topic among multi-asset
folks right now? You said off the top good volatility; are you taking advantage of that?
Garth Taljard: Yeah, we re-risked our portfolios in late February, because we thought with the stability there may be a
chance to add some more risk, particularly on the equity side. So we've added some US equities. And that's not
because we think the US is going to have a blowout year, but with steady growth, two to three per cent, it's certainly
better than what you can get in cash.
The other area we've been adding is on the corporate bonds side. You can be investing in investment grade bonds
earning four, five per cent. If you're brave enough to go into the high yield space, eight, nine per cent, and that's not bad
given the cash rates are likely to remain low for longer.
Bernie Lo: How about something under six, seven per cent?
Garth Taljard: I guess you take an average!
Bernie Lo: Not quite junk and not quite top notch investment grade, something like…
Garth Taljard: They call that crossover. So you've got a crossover where you get a bit of both.
Bernie Lo: But haven't bonds had their day already though? A lot of emerging market bonds, a lot of people have told
me the bond day, you know, the days of the big gains in bonds are probably over for the time being, already had their
run especially when equities looked like they were going out of fashion.
Garth Taljard: Certainly government bonds are not that attractive any more. I mean they were a pretty good safe haven
earlier this year. But if you're locking in negative yields it doesn't look that attractive a proposition. So we'd probably
move away from government bonds and more towards corporate bonds. And the hot button remains income, so people
are still looking for income, and that's understandable given that cash rates remain low, and there are a lot more people
getting older, wanting to draw down their savings.
Bernie Lo: Is that keeping them in traditional bonds or is that sending them the way of perpetual bonds, maybe… Are
convertibles back in fashion at all? Nobody's talked about convertibles to me at all in 2016. There's got to be some sort
of a reason for that.
Garth Taljard: I mean convertibles remains a small market, so it can't just absorb all the demand for income that's
coming in. As far as the blend is concerned we are seeing people diversify away from pure governments into corporates.
And also emerging markets actually look quite interesting. You mentioned emerging market bonds, yes, capital gains
have been kind of volatile, but a lot of those EM currencies are now looking pretty oversold. So maybe a small allocation
to some EM bond and EM currencies might be interesting.
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Bernie Lo: Let's talk about markets in terms of where the map lies right now. Taking a break from Europe and Japan,
boy Japan's been disappointing, hasn't it?
Garth Taljard: Yeah.
Bernie Lo: I mean it was… Things seemed to be going well and it was supposed to be a buy at 17,000, it was supposed
to be a buy at 18,000, 19,000, we're back at 15,000 now. And all that because of a lousy ¥4 move against the dollar. I
mean how bent out of shape can the market be?
Garth Taljard: And that I think was completely the opposite reaction of what they were intending when they introduced
negative interest rates. We see this as what we would call QE fatigue. Europe and Japan in particular have been very
strong in the last three years because of this QE intervention and a lot of monetary stimulus. But that story is looking
tired. So we've decided to pull in our horns a little bit on Europe and Japan, take a break there and rather rotate into the
US equity market.
Bernie Lo: You're not concerned about what… I mean the US, it's not like you're throwing lock, stock and barrel at the
US, right? You're talking about absorbing and adding.
Garth Taljard: Absorbing and adding. We never take…
Bernie Lo: I thought that was a really richly priced market, maybe in some ways deservedly so. I mean it's the most
transparent in the world with the most liquidity and they report on a quarterly basis which could be good or bad. But you
do always know what a company is doing, well, except in the case of Valeant Pharmaceuticals. But I mean adding now
would seem a little bit late to the game, wouldn't you think? But we're talking about a small single digit percentage, right?
Garth Taljard: Yeah, that's right. And I think you're right, as you say, you know what you're getting with the US,
whereas it's very unclear what might happen in Europe and Japan.
Bernie Lo: South East Asia, is that part of your arsenal? Is that part of your toolbox?
Garth Taljard: It is, yeah.
Bernie Lo: Yeah? We've seen for the first time this year, we're starting to see a little bit of stirring there. Somebody the
other day coined…I don't know if they coined the term but they made a comment, ‘the VIP market’, Vietnam, Indonesia,
the Philippines in favour for the year, adding Brazil and other troubled markets. They look on the verge of getting rid of
the president there, like so many Latam countries have, and you have an emerging market space which has gained 15
or 20 per cent in 3 months this year. Were you part of that party?
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Garth Taljard: So we upgraded emerging markets to neutral, but we haven't yet gone positive. As you mentioned
there's still quite a lot of uncertainty and risk in emerging markets. So to take that risk you really need to be convinced
that there's a strong momentum behind it, and I think it's too early to take a big bet on emerging markets. But at the
same time we're happy to remain neutral rather than short.
Bernie Lo: Garth, thank you very much. Have a good rest of your week, okay? Appreciate you stopping by. Thank you,
Garth Taljard, Head of Multi-Asset Products…
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