JPMorgan manager sees new record highs for stocks

HONG KONG (Reuters) - Investors should remain bullish on stocks even after the recent run to record highs, with the Federal Reserve likely to cut U.S interest rates again, said a fund manager at JPMorgan Asset Management.

The best opportunities lie in Asian stocks, natural resources and technology shares, said London-based Jonathan Lowe, head of a fund of funds team that manages about $8 billion in assets.

Lowe said an aggressive rate cut by the Fed in September had been a very positive signal and was likely to help steer the U.S. economy away from a possible recession.

The U.S. central bank on September 18 slashed both the benchmark fed funds rate and discount rate by 50 basis points to 4.75 percent and 5.25 percent respectively to help cushion the U.S. economy from a housing slump and financial turbulence.

"That aggression they demonstrated in cutting rates suggest to us there is still further upside in equity markets," Lowe told the Reuters Wealth Management Summit on Tuesday in Hong Kong.

Since the rate action, global equity markets have rallied to record highs. The MSCI's All-Country World Index jumped more than 10 percent from the August trough to an all-time peak on Monday.

Lowe, who manages the JPMorgan Evergreen Fund, a vehicle which places bets on other JPMorgan equity, fixed-income and alternative investment funds, increased equity exposure to 55 percent from 40 percent immediately after the Fed move.

The increased equity weighting included a Southeast Asian equity fund, a natural resource fund and a U.S. technology fund.

He lowered the cash position to 15 percent from 25 percent.

"We've raised our equity positions, we've not cut back as yet. Obviously markets don't go up in a straight line and I have to say I'm nervous about the reaction of some markets like the Asian markets. But I don't think it's over yet."

The Evergreen fund uses tactical asset allocation to try to maximize gains in a rising market and limit the downside in a falling market, while keeping volatility down.

The fund seeks to deliver absolute returns in all market conditions and is not benchmarked to any index.

It rose 17 percent in the past 12 months to end-September, compared with a 25 percent rise for global equities.

But Lowe noted its 200-day volatility was just 7-½ percent versus 12.3 percent for global equities.

The US$40 million fund currently holds about 15 funds, with a U.S. dollar bond fund, an Asian equity fund and a market neutral U.S. equity hedge fund among the top three holdings.

The fund charges a 50 basis point asset allocation fee on top of the fees of the underlying funds. He said this gave it a total expense ratio of about 2 percent.

Lowe said he thinks some Asian markets are still likely to outperform and that U.S. stocks look set fare better than their European peers over the next 12 months, with a weak dollar helping boost profits for some firms.

Within the U.S. market, the tech-heavy Nasdaq was also worth looking at because "the technology bust has lasted now for seven years and I think that is long enough," he said.

But ultimately, Lowe said the likelihood that the Fed will cut borrowing costs by another 25 basis points at the next policy-setting meeting later in October is one of the main factors making him bullish on equities.

"From that point of view we want to maintain a fully invested position," he said.

"The bias is definitely towards equities and within that there is a relative high beta concentration with Asia, Southeast Asia, natural resources and technology."