Thames River Capital is slightly more optimistic about equities than some of its peers, based on an analysis of various macroeconomic factors.
The multi-manager firm says it is not massively bullish on equities as there are still plenty of problems in the global economy nut it believes that from a historical perspective, this is not a bad entry point into equities, given it sees little value in the bond market except in high yield.
The firm analysed the capital value of the FTSE 100 and found it made no gain since 1998. On March 19, 1998, the index stood at 5,997.92 points, not far off it current value following the recent rally. Thames River says this shows we are not in bubble territory and that the market is neither extremely cheap nor expensive.
It points out that company balance sheets are strong, with firms cutting costs, refinancing debt and using cash balances to pay dividends. In many cases, dividend yield is higher than the corporate bond yield. The firm believes if commodity prices are too high, a fall would have the effect of a tax cut that could stimulate the global economy.
Thames River multi-manger co-head Gary Potter says: “Bonds are over-owned and equities are under-owned. It may not happen but if US pension funds see they are getting more from equities and the move from bonds to equities gains momentum, it could push the market higher.”