Head of equities and director of multi-manager funds Bill McQuaker says one of the positive indications of a sustained recovery is that companies have got a grip on profitability again. He says there is not as much pressure on costs as six months ago and we are not seeing the same level of job cuts.
McQuaker says this really matters because firms will be looking at how to restructure and expand and may go as far as job creation. He says that it will be a struggle to keep interest rates at the current low level if there are reasonably normal growth rates and at some stage, interest rates will have to go up.
“This would be a challenge for equities and gilts. Higher interest rates are designed to dampen things, but there is a concern that they could maybe put the fire out. Higher interest rates would not necessarily stop the recovery – that is a kneejerk reaction – but we think it’s too early to do much about this now.”
McQuaker and his team like part of their portfolios to be sensitive to market perceptions of inflation, so they are holding gold as an indicator of whether inflation will be a problem.
He says: “If you look at what has happened over the last two years, there has been a lot of policy stimulus and a lot of money has been printed. There are concerns about that level of money creation and inflation is a possibility. Currencies have been devalued one way or another, so the gold price will be inflated to compensate. If there is a reason to be concerned about inflation, we will put up the gold weightings in the future.”