Unlike conventional market wisdom, Tom Clarke, co-portfolio manager of the William Blair Macro Allocation Fund, sees investment opportunities in re-risking the portfolio by taking on the geopolitical risk of populist movements. In a recent interview with Citywire, Clarke discussed his top three currency calls in this environment.
“Broadly the opportunity is to be long emerging and short developed,” Clarke told Citywire. “I wish that was massively oversimplifying it, but it’s not.”
One exception to that view in currencies is the Fund’s British pound exposure. Before the Brexit vote in June 2016, the pound was overvalued, so the Fund was short.
After the pound dropped in value following the Brexit vote, the investment team moved its pound exposure to neutral before increasing it to long in September 2016. And as a result of the recent U.K. general election where the pro-Brexit Conservative party lost its majority, Clarke believes a “softer” Brexit will benefit the pound.
“The U.K. now has much less bargaining power than it once had, whereas the EU has more because of France, Holland, and the populist wave receding a little bit,” said Clarke.
The second currency Clarke mentioned to Citywire is the Mexican peso, which slumped in 2016 due to President Donald Trump’s rhetoric during the election campaign.
Clarke noted that the team cut the peso position heading into the election and were able to buy it later at a cheaper price. “That’s not something that’s easy to do,” Clarke said. “We cut it because the Trump risk was one we did not want to take. The opportunity [to buy back] got big enough so we responded.”
The Philippine peso is the third currency Clarke highlighted. The Philippines also have a a “maverick president who says what he likes and is a populist,” Clarke told Citywire, “[but] the regulatory institutions are of decent quality there.” He said that economic fundamentals, including the growth rate and inflation are also relatively positive.
He added that several emerging countries have experienced a spike in inflation after a sharp weakening in their currency. This increases the concern that “double digit inflation expectations get entrenched and go back to being the norm” but he thinks this is very unlikely in the Philippines. In response, the Fund has increased its position in the currency over the last few months.