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Overseas openings

The global economy entered 2007 having seen its strongest period of synchronised growth since the Second World War. Strong growth combined with low levels of inflation and interest rates created a very favourable backdrop for investors.

However, a new year has brought plenty of issues for investors to worry about. Bond markets have been under pressure from poor news on inflation while a sharp setback in the US housing market has caused investors to question whether companies’ profitability will start to deteriorate. It certainly seems that after several years of strong stockmarkets, it is going to get tougher for investors to make money.

In managing iimia’s income funds, we have reacted to the poor value we see in UK commercial property and fixed-interest markets by increasing exposure to overseas holdings. By investing overseas, we hope to combine holding assets that are more attractive than comparable ones in the UK and also have exposure that stands to have its value boosted by currency movements. The following are three examples:

Japanese and German property. While most UK commercial appears fully valued, the same can not be said for property in Japan and Germany, where conditions could hardly be more different. With local confidence only just being restored in the countries’ property markets, yields stand at a significant premium to borrowing costs.

Far East ex Japan equity income. While the number of high-yielding equities in the UK market has been steadily falling, a growing number of companies in Asia are paying high dividends. Indeed, the Far East ex Japan region has a greater number of companies’ shares yielding over 3 per cent more than any other area of the world.

Technology stocks. With many technology companies listed in the US, the weakness of the dollar compounded the dull performance of the sector for UK investors in another year when “value” stocks led markets higher. The prospects for the technology sector look brighter in 2007, with corporate spending expected to boost demand at a time when a number of important new products are being launched. One sub-sector within technology that stands out as looking particularly interesting is biotechnology. Biotech companies’ shares prices fail to reflect adequately the rapid development of new drugs and the favourable prospects for merger and product licensing interest from the traditional big pharmaceutical companies.

Richard Scott is fund manager of the CF iimia growth & income fund.

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