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Peter Askew: FTSE 2013 performance makes the case for active global equity management


The UK economy bounced back impressively in 2013. The year started with warnings of a triple-dip recession but ended with the UK as one of the fastest growing economies in the developed world and delivering healthy returns for investors.

The FTSE 100 finished the year up 18.7 per cent according to JP Morgan Asset Management, which publishes an annual analysis of comparative global stock market returns over the preceding 10 years.

The analysis shows that while the FTSE’s performance in 2013 was undeniably strong, it ranked only mid-table – well ahead of emerging markets, which lost money in sterling terms, and Asia ex-Japan – but significantly lagging other markets including Japan’s Topix, Europe ex-UK and the S&P 500 in the US.

If we look back over the past decade, in four of the 10 years the FTSE 100 was relegated to the bottom three of the nine markets and portfolios covered. For annualised growth in sterling terms over the 10 years it is second from bottom, with a return of 8 per cent.

You could make the point, of course, that there is a lot more to the UK market than the FTSE 100. I am not suggesting that UK stocks do not deserve a place in a balanced portfolio but by highlighting the relative performance of markets around the world and underlining the fact that no single one is consistently the top performer, the analysis makes a convincing case for active global equity management.

Investors with a portfolio heavily weighted to the UK might also wish to consider question marks about the sustainability of our economic recovery. Unemployment has fallen but there has been no improvement in productivity and there are also currency concerns.

The improving UK economy was a factor in what was a reasonable performance by sterling in 2013 but unless we see a rebalancing to increase exports then we will eventually see it lose ground against other currencies.

The UK’s current account deficit, which stood at 5.1 per cent of GDP in the third quarter of 2013, is at its third highest level in the nation’s history. Eventually the currency will make the adjustment an economy does not. The risk is that sterling will weaken and that will undo what a stable to stronger pound has achieved in bringing down inflation.

To my mind these concerns serve to further underline the case for a global investment strategy. But how is this best delivered in terms of fund selection?

After a strong run in 2013 many developed markets are trading on P/E multiples close to historic averages. In that light we have been reducing beta exposure and focusing on stockpickers who can spot individual companies with the potential to perform even if the wider market does not. In many cases this means looking beyond household names which may be ‘too big to succeed’ to identify first class managers whose primary focus is on delivering returns rather than asset gathering.

Only those with a crystal ball can know for certain what the rest of 2014 will hold for investors. For those without, we believe a global approach and a focus on high conviction managers with the potential to deliver genuine alpha will be the key to capitalising on the opportunities that lie ahead and achieving the best possible returns for investors.

Peter Askew is co-manager of the T. Bailey Growth Fund



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