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Brian Tora: US and Europe still appear to offer opportunity

Brian Tora MM blog side

The past couple of weeks have been fully occupied with putting together an investment letter to send to clients. As the humble editor, I tend not to express my opinion too loudly – there are a host of contributors all too willing to do that. But the task does provide an interesting glimpse into what some of the investment professionals with whom I work consider of importance in these difficult times.

Three themes stood out for me. First, the US has a lot more going for it than the pessimists give credit for. Second, despite the bounce back for Europe, following Mario Draghi’s comforting words, bourses in the single currency zone continue to lag other markets. And finally, the shift from bonds into equities seems to be gathering support, but is making little impact on valuations just yet.

All of this felt very positive as I sifted through the arguments and supporting graphs that crossed my desk. For a start it was in stark contrast to some of the material I had been reading recently.

Take the US. The Central Budget Office there has apparently put out a rather downbeat report on the effects on economic activity of the budget deficit there. With the babyboomer generation retiring, debt is forecast to increase as a percentage of GDP.

Aside from the problem this presents to the administration, it is forecast to dampen economic growth.

But according to the opinion expressed in the journal I was editing, this takes little account of the migration of manufacturing jobs back to the US, cheap shale oil and gas and building confidence in the housing market. These should encourage capital spending and boost tax revenues – all good news for the debt situation.

As for Europe, markets there have underperformed America and the Asia Pacific region significantly over the past five years. While playing catch up is not a given, by now it must surely be clear that the political will to hold the single currency zone together is not in doubt.

Politicians have a nasty habit of pulling the rug out from beneath investors’ feet, but many of the companies on the other side of the channel are truly global – and cheaper than their equivalents in the US.

The bonds versus equities arguments have been played out on these pages before, but the contention from the outgoing Governor of the Bank of England that inflation will remain higher than desired for longer adds weight to the bull position.

This is, perhaps, one of the easier cases to sustain. Some bond yields have been held down by nervous investors seeking safety, but if things really do turn out to be better than feared, this support will dwindle. Perhaps some profit taking will provide an opportunity to rebalance.

I read last week, with more than a little touch of sadness, of the death of Richard Thornton. The “T” in the fund management firm of GT (the G was Tom Griffin), he was tireless in promoting the businesses he helped to run. After GT was taken over, Richard set up Thornton Management and was a lively member of the London investment scene.

He was a keen sailor and used to charter a training ship to entertain investors in his funds at Cowes Week. Being fortunate enough to be amongst his guests I well recall one trip in the summer of 1989 when my wife climbed the rigging to the crow’s nest. This led to an invitation to crew his yacht to Gibraltar, which I declined, but she accepted. The stories of that trip are the stuff of legend. His passing makes me wonder who the future giants in this industry might turn out to be.

Brian Tora is an associate with investment managers JM Finn & Co


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