View more on these topics

Build on rewards of under-rated stocks

Between March and July, income funds with little exposure to telecoms, technology and media and large exposure to old world value stocks performed particularly well.

However, that period of dramatic outperformance is now over and, although the market is at the top end of its recent trading range, there is very little market leadership.

We believe the market is reasonably attractive but there will be no strong major investment themes.

Successful funds will be those where value is added at the stock-specific level and individual stock selection is going to be the key to out-performance.

Opportunities will present themselves in all areas of the market – growth and value – but it is still our view that the best opportunities are likely to rest in old world intrinsically undervalued stocks.

The recent corporate action from venture capitalists has reinforced investors&#39 awareness of this undervaluation. One mini theme that we are particularly attracted to at the moment is building and contracting companies.

Here, many companies are selling on five-year relative lows and, with interest rates now much less volatile and the economic cycle becoming less pronounced, the quality of the earnings is improving dramatically.

In addition, both in the US and the UK, governments are running big budget surpluses and have announced spending programmes which should underpin the profits of many building-related companies for the foreseeable future.

In the UK, it is possible to buy good-quality building companies on big discount ratings to the market and at significant yield premiums.

Other areas of the market where we are overweight are engineering, where a number of quality companies are selling on depressed ratings because of the strength of sterling, and food manufacturers, where predictability of earnings and yields available are not fully appreciated by the market.

There are signs that the UK economy is beginning to slow to a more sustainable rate of growth and we believe we are quite close to the interest rate peak of this cycle.

That should enable equities to continue with their gentle upward progression towards the end of the year.

Although the market looks quite expensive on historic parameters, there remain a number of interesting investment opportunities across the breadth of the market to keep fund managers busy and optimistic.

The only two potential short-term negatives influencing the market that I can foresee are a continued disruption to currency markets from the weakness of the euro or a corporate “accident” occurring in a major technology or telecoms-related company, given that expectations here are still very high.

On balance, we think the market is attractive and there remain enough interesting opportunities in income-related stocks for this asset class to be rewarding for investors.

Current markets allow the value fund manager to flourish. Moreover, stockpicking in this environment is absolutely key. This is not the time for lazy fund managers.


Ifa Roadshows

Fund managers fear the petrol price protests sweeping the country will bring their IFA roadshows to a standstill.As road blockades increase and petrol stations run out of fuel, pressure is mounting on fund managers to decide whether they should cancel the events over concerns that IFAs will not be able to make the journey.M&G, Threadneedle […]

Fatchett warns test case could hit networks in FSAVC review

The pension review test case being brought against DBS could limit the amount networks can charge members in the FSAVC review, according to the solicitor representing the case.Armstrong Neal partner Gareth Fatchett claims he has received 100 calls in a week from current and former DBS members who intend to make similar claims against the […]

PMS reaches 1,000 members after eight months

Support services company Portfolio Member Services has recruited its thousandth member firm only eight months after it was set up. PMS is a joint venture established by Bankhall Investment Associates and IFA Portfolio. It provides benefits to members such as compliance and T&C support, a PI facility, a product research database, and &#39Reasons Why&#39 software. […]

&#39No penalties for Equitable clients&#39

Retirement specialist IFA Wentworth Rose says it has obtained a statement for its Equitable Life policyholding clients confirming they will not be penalised for drawing an income or transferring their funds.Equitable introduced a 20 per cent terminal bonus penalty in a bid to protect its with-profits fund from mass transfers shortly after its House of […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm