Three trends lead to fund tips from SEB

Swedish bank SEB says in its summer funds letter to clients that it has spotted three clear trends that provide opportunities for investors.

The first of these is continued strong growth in Asia ex-Japan. The banks says that while there may be signs of some dampening of growth rates in China and India, there is nothing pointing to a broader slowdown in the region.

“We prefer to see it as these economies changing tracks, from being driven by a strong export sector to being increasingly driven by domestic consumption, said Johan Hagbarth, investment strategist at SEB.

Investors looking to increase their exposure to the East should look to two types of fund, Hagbarth said. Those wanting to tap into domestic growth could pick a fund investing in Asian smaller companies, such as SEB Choice Asienfund Småbolag ex Japan (Lux Acc). Those willing to take a bit more risk could go for a fund investing in China, such as the JPM JF China fund.

The second trend is the development towards increasingly strong private sector business in the West. Corporate earnings were good in the past few years, and there is nothing suggesting that this is about to fall away. And for investors interested in taking on a bit more risk then the private equity sector is an interesting alternative, Hagbarth said.

“In this relatively mature stage of the cycle it is particularly beneficial to put money into good private equity funds, for example SEB Listed Private Equity (Lux Acc). But one has to remember that such funds historically have suffered volatility in the same way equity markets have.”

The third major trend is corporate bonds. Hagbarth said that with monetary tightening expected in Western markets this would typically be a poor environment to consider fixed income. But the picture is different for those putting money into corporate bonds, such as high yield. A portfolio noted here is SEB Choice High Yield SEK (Lux Acc).

The risk profile of high yield bond funds is different, Hagbarth notes, but the promise of higher returns makes up for this. SEB believes the ability for this sector to produce returns will continue going forward.

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