View more on these topics

David Coombs: Looking for earnings growth in developed markets


The start of this year found emerging markets leading the sell-off in risk assets. This trend was driven by several factors, not least of which was softer economic data out of China and the US. Combined with the tapering of bond purchases from the US Federal Reserve, the result was sharp headwinds for the emerging markets.

Growth in earnings is likely to be the key driver of equity market returns this year, therefore, although we note that while the latest reporting season has been broadly positive, results have been mixed and peppered with profits warnings.

However, this is the ideal environment for stockpickers to generate alpha – a theme that will permeate our thinking over the next 12 months.

There are three funds in particular that we play this theme through. The first is the Miton UK Multi Cap Income, which has a small and mid cap bias (33 per cent is held in Aim). The fund is managed by the highly experienced Gervais Williams.

We view this fund as a small/mid cap fund but with a dividend discipline. It has a broad approach and has now hard closed at £400m owing to reduced liquidity in smaller cap stocks. We expect this constraint to preserve performance.

The momentum behind growth and employment in the US is key for the trajectory of quantitative easing and interest rate rises, but we expect the Federal Reserve to err on the side of growth and we remain comfortable with our overweight position.

The concentrated Legg Mason Clearbridge US Aggressive Growth Fund remains a favoured alpha-generator in this market, and a good satellite to complement more index-aware US funds. This strategy targets companies that exhibit growth potential in excess of the S&P 500, and is fully unconstrained.

The managers have a strong valuation discipline and will not pay more than a price/earnings to growth ratio of 2 when initiating a position – a strong differentiator with some managers who are willing to overpay for growth. 

We are underweight Europe, but are focused on valuation opportunities. For pan-European small cap exposure we like the Baring European Select Trust, run by Nicholas Williams. His growth-at-reasonable-price strategy is well positioned to benefit from a European recovery. The definition of GARP used is where the growth forecast exceeds consensus, and the current valuation falls between 90 per cent to 120 per cent of the market’s P/E valuation.

The fund targets outperformance versus the HSBC European Smaller Companies index. Debt-to-equity and ROE are important metrics used to determine the quality of a company.

About 75 per cent of asset allocation is driven by stock selection, with the balance resulting from macro analysis. 

We expect developed markets to continue to be characterised by low rates, subdued inflation pressures and low-to-moderate growth. Since the start of 2013, emerging markets have underperformed the US by 35 per cent and spreads on emerging market debt have widened significantly over Treasuries. We hope to take advantage of value in these markets.

David Coombs is head of multi-asset investments at Rathbone Unit Trust Management



Govt to force fund managers to disclose all pension charges

The Government is to force fund managers to provide a full breakdown of all charges related to defined-contribution workplace pensions. In a written ministerial statement published this week, pensions minister Steve Webb confirmed that the Government will introduce new measures requiring transaction charges in pension schemes to be disclosed. Webb said: “I am pleased to […]


Three Counties halves GEM exposure

Three Counties has cut its global emerging market exposure by 50 per cent because of volatility concerns. The firm has sold out of the £553m  Lazard Emerging Markets fund and £1.3bn Investec Emerging Market Local Currency Debt fund. Three Counties IFA Andrew Alexander says the key risks to the sector are tapering of quantitative easing in the […]


FOS rules against 14 more IFAs over Keydata advice

The Financial Ombudsman Service has ruled against 14 more advisers over unsuitable Keydata advice. Since 1 April last year, when the FOS started to publish final decisions on its website, there have been 72 claims against adviser relating to recommendations to invest in Keydata. Last October Money Marketing analysed FOS decisions against advisers, finding it […]

Pensions - thumbnail

Preparing for the changes to the pensions market

As more and more providers start to reveal their stance on the charge cap and removal of commission and active member discount pricing, we thought it would be worthwhile to look at what these are, and the steps businesses should be taking to prepare for this.


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