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Fund managers have mixed outlook for UK

New Star trio tell investment IFAs that disagreements can be healthy for performance

Uncertainty about the future direction of the UK economy was reflected by fund managers Stephen Whittaker, Theo Zemek and Patrick Evershed at New Star’s investment conference in London last week.

Whittaker, who manages New Star’s UK growth fund, was most bullish and predicted that the FTSE 100 could reach 6,500 in 2006.

Zemek, who is head of fixed income at New Star, said a global bubble could be building in which she called a frothy or “cappuccino” market while select opportunities fund manager Evershed said he has positioned his portfolio defensively in the belief that the UK economy could be heading for a storm.

Whittaker based his optimism on a return to confidence in the UK housing market as a result of lower house-price inflation and a robust labour market continuing to underpin consumer spending.

Zemek said global upheaval caused by the Asian/US trade imbalance and the rise of capitalism in China, together with falling interest rates, led her to believe that the market is in the second phase of a second-stage bubble.

Evershed said he had concerns over the oil price and possible collapse of the dollar.

Fund managers at New Star are not bound by a house view and while Evershed said this means they can sometimes disagree, he added that it can be healthy for performance as managers are able to pick stocks on the basis of their personal convictions.

Evershed said: “I am cautious because of record personal borrowing, pensions and the cost of living, high Government borrowing, a record trade deficit here and in the US and high US government borrowing. These are not sustainable.

“I do not want to be too pessimistic but I have reoriented some of my portfolio into stocks that will do well despite any problems.”

Zemek said: “My view is that if we are in a bubble, then we are just emerging from phase two. People are often afraid of bubbles but there is a lot of money to be made from them.”

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