This year has so far proven tricky for investors. On the whole, corporate news has been good but this has been offset by a macro environment that could be viewed as unhelpful at best. Unrest in the Middle East, the threat of Greek default and inflation fears in emerging markets, most notably China, has dominated news headlines and created a volatile and uncertain environment. These factors will all continue to be significant going into the second half of the year, in particular the Greek situation, which seems to have been resolved only temporarily.
The US is about to enter its second-quarter reporting season and we wait anxiously to see whether earnings can continue their upwards trajectory or if they have peaked already. It is quite possible we could see a greater number of unpleasant surprises as previous upgrades become harder to meet. We have already seen a couple of disappointing figures from UK companies in recent weeks, such as Charter International, which could prove to be an early warning sign.
However, despite this slightly gloomy outlook, there are pockets of value the multi-manager can take advantage of. Mega-caps, particularly in the UK, remain on historically low valuations and may be due their time in the sun. The prospect of attractive, well covered dividends coupled with undemanding growth ratings could be investments better suited to an environment of uncertainty. They also have the benefit of being truly international and therefore enjoying diversified revenue streams. There are several excellent managers that have been playing this theme for some time and I expect it to become a more mainstream view as the year goes on.
Another area I believe that could provide good returns over the next 12 months is the listed private equity vehicles. They have been ignored due to their poor share price performance during the credit crunch and subsequent recession. The fund of private equity funds in particular offer compelling value, with the added benefit of massive diversification at the underlying company level.
The sector is now in a position of far greater health and has rallied strongly since the market bottom in 2009 but as long as you believe we are not entering a double dip or that global growth is going to fall off a cliff, these vehicles on discounts of between 25 per cent and 30 per cent still look extremely interesting.
Finally, on a more positive macro point, it is possible that the next few months will see the end of the latest round of monetary tightening in China. Quite what impact this will have on the region is uncertain but as emerging market equities on the whole have lagged developed ones so far, we may see equity performance reflecting the growth areas of the world again as we did in 2009 and 2010. Overall there is lots to be cautious about but also reasons to believe that more positive returns can be made by multi-managers throughout the rest of the year.