10 minutes with Bill Mott
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PSigma’s Bill Mott remains more cautious in market and macro views than many, although he predicts a double-dip can only come through serious economic mismanagement.
Like many market watchers, the veteran UK equity manager sees the current recovery as driven by incredibly loose fiscal policy, which will have to end this year to keep the bond market in place.
“This means the upcoming election will be more crucial than any since Margaret Thatcher came to power, as whoever wins will have to show strong fiscal leadership,” adds Mott.
He cites the Chinese proverb that whatever you cannot avoid, you should embrace and feels tough short-term policy decisions mean a better long-term economic future.
“The UK economy is due a long period of convalescence after debt and consumption excesses, and our view is that the required rebalancing will lead to a long-term decline in sterling,” he says.
While a weak macro picture does not always translate into poor markets, Mott is also cautious on UK equities as the global economy needs a similar course of treatment.
He believes many countries have counteracted the downturn by using up future demand and although emerging markets will grow quicker than developed, they cannot thrive with the West in recession. That view has largely kept Mott out of the sector best placed to benefit from emerging market growth, staying very light in areas like miners, for example.
Despite all his caution, Mott predicts a period of slow growth rather than another downward lurch, unless the Government mishandles things badly.
“As long as ministers apply fiscal tightening correctly, the economy will be slow enough to preclude any rapid interest rate rises and we should be in for a long period of sedate growth,” he says.
“Any kind of double-dip will only be the result of serious economic mismanagement, which is why fiscal leadership is badly needed from whatever party wins the election.”
To generate performance in this tough environment, Mott has taken a barbell approach on his £400m PSigma income fund, between what he calls Neil Woodford and Richard Buxton-type strategies.
On one end of the portfolio, he is holding high-yielding defensive companies with strong cashflows, which he expects to be re-rated as income-hungry investors move away from bonds. These stocks are found in areas such as pharmaceuticals, telecoms, integrated oils, utilities and tobacco - sectors also favoured by the defensive Woodford on his Invesco Perpetual funds.
On the so-called yield drought currently in the market - largely due to the problems at many banks - Mott believes companies are at the nadir of their dividend-paying potential and will rebuild payments from here.
Meanwhile, with the world in a low-growth phase, he feels the businesses that can grow faster than the corporate average will be easily identifiable, boasting strong geographic advantages, for example, or a great management team.
Like Buxton at Schroders, Mott draws comparisons with the ’nifty-50’ period, with 50 US large caps in the 1960s seen as buy and hold growth companies and propelling the 1970s bull market.
With that in mind, Mott has the other end of this barbell portfolio in this type of stock, highlighting firms such as ARM and Compass.
“One economic fact of which we can be certain in the coming years is a growing global population, and with many seeking Western lifestyles, consumer companies with international presence are likely to grow faster than average,” he adds.
Mott has around 10 per cent of his portfolio overseas, with several positions in global consumer names such as Nestlé, Johnson & Johnson, Colgate and Coca-Cola.
He has also gone into foreign markets to boost his position in sectors such as pharmaceuticals and utilities, where opportunities are somewhat limited in the UK.
On banks - previously the largest hunting ground for income investors - Mott said the majority of UK-based stocks are still impossible to analyse as there are so many unknowns on their balance sheets.
His only banking holding is HSBC. Other financial positions in the fund include Standard Life and RSA.
“The situation on banks will become much clearer over the next few years but I was burned badly in the sector 18 months ago and am more cautious now,” he says.
“With Lloyds, for example, it is a good stock on a long-term view but I am less confident over the next 12 months.”
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