Mott says that those companies which maintained or improved their dividends in the past two years are unlikely to cut them now.
He says: “There are a number of companies which currently yield significantly more than 10 year gilts and we believe that these companies will undergo positive re-ratings. Their yields will gradually fall as share price appreciation delivers capital growth.”
Mott reiterated his belief that we will see a return to the ‘nifty fifty’ market,the formal term used to refer to 50 popular large cap stocks on the New York Stock Exchange in the 1960s and 1970s that were widely regarded as solid buy and hold growth stocks.
He says: “These companies will be able to deliver this superior growth because of their high geographic exposure to faster growing areas of the world, or because of the industry in which they are operating, or because of their superior technology, or management ability. We are balancing our high-yield portfolio with a number of companies which we believe will deliver superior growth.”
Given that Sterling is to remain weak for some time, Mott currently has a very overseas orientated portfolio as well as allocating around 9 per cent of his company to overseas companies which are internationally priced and where a restricted number of UK companies fulfil the teams requirements.
He says: “This is a tactical rather than long-term strategic move. Our positive view on telecoms, pharmaceuticals and utilities has resulted in us adding to the portfolio some European stocks.”
One area of the market that Mott says is of particular interest is consumer staples, which he says have the ability to exploit the growing middle classes and have typically underperfomed given their defensive nature.
He says: “We believe they will be able to grow much faster than the corporate average in the future and will be in the forefront of the new ‘Nifty Fifty’. In the UK, we hold Unilever, Reckitt Benckiser, Diageo, British American Tobacco and Imperial Tobacco, whilst overseas we own Nestle, Johnson & Johnson, Procter & Gamble, Colgate Palmolive and Coca Cola.”
Mott says the UK will have “a much bigger hangover from the credit boom” given its poor position in the economic landscape. He says the only way to keep things going is lower interest rates, more quantitative easing and government spending.
He says: “The bond market in the UK will force the government to adopt a more prudent approach following the next election which is in May at the latest. It is time to face up to the fact that policy makers will have to tolerate a long period of very slow growth and high unemployment whilst the excesses of the past are worked out of the system in terms of both private and government consumption.
“In our view, quantitative easing should now be withdrawn. It has facilitated some re-financing of bank debt by large corporations but only at the expense of an unnecessary rise in asset prices which increases the risk of inappropriate consumption by the private sector.”