Investors trying to steer their way through the markets should make investments based on the continuing success of corporates rather than governments, Aaron Gurwitz, chief investment officer, Barclays Wealth Management, told CNBC Monday.
“Businesses are doing much better than governments,” Gurwitz said. “We don’t think this is a good time to own longer-term bonds or high-grade corporate bonds, but it is time to own high-yield bonds and equities.”
There has been increased investor appetite for perceived safe havens such as US Treasurys and German bunds in recent months, as economic signals from the US and Germany have been more promising.
The upcoming earnings reporting season is expected to be relatively positive for US corporates.
Barclays Wealth Management is shifting from high-grade bonds to investments exposed to private businesses, but wants to maintain some diversity, according to Gurwitz.
“If diversification means anything at all, it means that there’s something in your portfolio that you are rooting against,” he said. “That’s the part of the portfolio that’s there to protect you if the world turns out worse than you expect.”
High unemployment levels are helping to keep the cost of employment down in the developed world, which he believes is key to the success of corporations.
“Everybody’s looking over their shoulder with unemployment so high,” he said, adding that he believes pay demands will stay low in the short term.
He is not certain that the economic recovery will continue and said he is “not particularly optimistic” about European versus American shares.
“If you are a stock picker looking at valuations, you need some degree of rationality and direction in the markets,” he said. “It’s very difficult to predict where markets are going. There’s always a balance between building a strategic portfolio and whether tactically you want to be a little bit under or over weight in one market or another.”
Fund managers could also take another look at emerging market shares, which have lost popularity in recent months as investors have fled to safe havens. There is also a perception that emerging market companies will lose out if the developed world’s appetite for their exports declines during economic uncertainty.
“If you think of investors like pension funds and insurance companies who need a rolling income, that’s nowhere to be found in the developed world these days,” Bartosz Pawlowski, emerging market strategist, BNP Paribas, told CNBC.