Investment managers at Mediolanum International Funds discussed their latest asset allocation and trends shaping the industry at the fifth annual Mediolanum International Media Event (MedMe) in Dublin last week, attended by this news service.

In an interview with this news service last week in Dublin, Christophe Jaubert, chief investment officer at Mediolanum International Funds discussed the firm's asset allocations. He outlined the benefits of being diversified across equities and fixed income and across regions. The firm has neutral exposure to equities, and is neutral across regions namely the US, Europe, emerging markets and Japan. It is slightly overweight in duration and like high yield.

Faced with the Middle East conflict this year, he said they became a bit defensive on equities when they realised it wasn’t going to be short term, but after a while, they came back to neutral as the market was not reacting so defensively. “Overall, our performance was not really affected by the conflict,” he continued.

In terms of allocation on the equity side, he is still convinced that growth will be there in the US with the strength of the AI cycle which will filter down into the rest of the economy. “Everything tells me that the US economy is doing well. When you look at the fixed income market, the quality inside the high yield market has been increasing. We don’t see any big recession coming.”

“The big subject is the debt in most of the country with few exceptions,” he added. “The good news in the US is that they have the capacity to raise tax if they want as they start from a lower base and can increase capital gains tax or corporation tax. That’s the advantage of the US compared to Europe, for example,” he said. “In Spain, France and Italy, where there are also high debt levels, tax rates are already high at around 45-50 per cent. They have less margin for manoeuvre. If interest rates stay too high too long, it could impact consumer, corporate borrowing and there could be a slow down.”  

On equities, Jaubert is neutral on the US as valuations are quite high and neutral on Europe due to the problems there, although valuations remain quite cheap. He is neutral on emerging markets and Japan where valuations are quite reasonable. “We like Japan as it’s an area where we can find quite interesting opportunities,” he continued.

Along with a number of investment managers, such as Carmignac, Comgest, and Indosuez Wealth Management, Jaubert likes tech-driven emerging markets which are concentrated in a few names although that can also pose a diversity risk. He invests in Taiwan, Korea, namely in the Taiwan Semiconductor Manufacturing Company (TSMC), SK Hynix and Samsung electronics. Unfortunately, he said he was a bit underweight there, so it has affected performance, but he is neutral now on emerging markets tech.

In the US, his exposure is broader, which includes tech and AI, financials and healthcare. He is also neutral on European equities, and likes banks and healthcare. In fixed income, Jaubert likes duration and high yield. He is slightly overweight in duration and neutral in high yield. “It’s a bit tricky with French bonds due to the elections in 2027 and there is a lot of volatility,” he added. “We are diversified between the US and Germany in duration and have some investments in Italian bonds. We also like high yield.”

High yield
Martin Reeves, head of high yield at MIFL, said at the event that the risk of defaulting in the high yield market has been the lowest it has ever been. “The returns won’t be as high but the risk is lower,” he added. He is overweight in UK high yield, as it is an unloved market and cheaper than others. “We like Boots, Iceland, David Lloyd Centres, and Stonegate that are performing well. The UK economy is actually performing well for these companies. If the UK economy goes into recession, these companies would be badly hit, but we don’t think that will happen,” he continued.

“We are underweight in French high yield. Most of the companies are actually fine but it’s uncertain what the economic outlook will be and the prices are too high. If the prices were lower, I would invest in them,” he said. “I am neutral on German and Italian high yield. We are also underweight in the US as prices are too high and overweight in Asia. We prefer the UK, we prefer parts of Europe and parts of Asia and Latin America.”

At the event, Giorgio Carlino, head of multi-management at MIFL, also said he is positive on equities and fixed income, but more positive on fixed income. He sees opportunities in duration, notably in Germany and the US. He is also positive on gold, reaching 10 to 15 per cent in some of the firm’s portfolios, saying that the demand is there.

Furio Pietribiasi, CEO of Mediolanum, also sees strong growth in Asia and emerging markets as well as good investment opportunities in the region. He is positive about the outlook.

Patrick McKenna, deputy head of portfolio management at MIFL said they are selling US tech for Asian tech. “It’s been a positive year for active investors in emerging markets,” he said. He likes Poland, which has a thriving middle class and strong economy, as well as Latin America. “One of the biggest contributors was also Greece this year but they have now been defined as a developed country,” he continued. McKenna also highlighted the importance of Taiwan and Korean stocks; likes India, although it has struggled in the last 18 months and is sensitive to higher oil prices caused by the conflict.

Jaubert explained the advantages of expanding in Ireland this year: it is more international, there are tax benefits and it is an English-speaking country. Ireland is the third largest investment fund domicile for funds after the US and Luxembourg, hosting over €5 trillion of funds ($5.6 trillion), an increase of 41 per cent since 2022.

MIFL is a management company approved by the Central Bank of Ireland to manage UCITS or undertakings for the collective investment in transferable securities, which are investment funds regulated at EU level, and non UCITS funds. See more about the firm here.