31st March 2014
As the end of the tax year approaches, savers may be looking to add a global angle to their ISA portfolio.
Three fund managers including Jeremy Podger manager of Fidelity Global Special Situations, Greg Aldridge of M&G Global Growth and Stephen Thornber who manages the Threadneedle Global Equity Income, portfolio provide their outlook for global markets.
Which markets do you expect to perform best – and worst – over the coming year?
Jeremy Podger, Fidelity Global Special Situations: “I remain positive on the US economy, which has firmly taken over the baton of global growth leadership from China. There’s also potential for a follow-through from Japan, where company profits remain relatively low compared to other regions and should continue to recover as long as the yen remains weak. Europe and emerging markets, on the other hand, present a mixed picture. While we have seen some signs of improvement in Europe, the economy remains sluggish though there is certainly decent potential for company profits to improve in some domestic sectors if the economy does strengthen. As for emerging markets, they have de-rated relative to their developed counterparts but this has been less broad based than expected. Some areas remain conspicuously high valued, and I believe it is still too early to be positive on emerging markets.”
Greg Aldridge, M&G Global Growth: “I think the US is doing quite well, continuing to pick up economically, and within that context, the US market has made very strong progress. While the economic picture is becoming increasingly attractive, I don’t think the same can necessarily be said for investment potential, as the market is reflecting this economic strength. In saying that, while valuations in parts of the US market appear stretched, by taking a selective approach there are still some great companies, which may have been overlooked by investors in the short-term – it is, however, a matter of being very discerning to avoid overpaying.
“In Europe, meanwhile, the macroeconomic situation looks patchier. There are some good signs, but also some areas where there are still indications that necessary tough decisions are not being taken. Further afield, enthusiasm surrounding Japan may be waning. There have certainly been some big steps towards improvement, but the risk is in whether or not this can be sustained. Emerging market countries are ostensibly very attractively valued, despite containing a variety of solid, well-placed companies. Sentiment has been very negative, and I think this has been stoked by ‘economic skirmishes’, which have fuelled the anti-emerging market fire.”
Stephen Thornber, Threadneedle Global Equity Income: “We expect global economic growth to continue to strengthen this year, and together with acceleration in company profitability, this should provide a supportive backdrop for equity markets. Developed market equities have performed strongly over the past two years, but we think there are still attractive opportunities. As equity income investors we are favouring the UK, core European and Nordic markets where we see attractive value and yields. In the US valuations in some areas are beginning to look a bit rich and we are being selective. We are increasingly positive on the Japanese market and believe Prime Minister Abe’s policies have the potential to effect real change, although this is likely to be a long and bumpy road and so are using periods of weakness to pick up long-term positions. Asian and emerging markets have de-rated on well documented concerns, whilst valuations are more attractive, we are waiting for more visibility before increasing positions.”
Are there any particular sectors you favour?
Jeremy Podger, Fidelity Global Special Situations: “Healthcare, which until very recently was shunned by investors because of patent cliff and regulatory concerns, has begun to look interesting from a growth standpoint. Many pharmaceuticals and bio-tech companies have a number of exciting new drugs under development, including those in ‘Phase III’, the final period ahead of commercial launch. The IT sector, which is seeing the realisation of many of the commercial opportunities envisaged in the internet space years before, also remains promising from this perspective.”
Greg Aldridge, M&G Global Growth: “From a sector perspective, there are certain areas that I believe are currently looking rather fully valued, in particular the consumer staples space (essential household products). This has attracted a lot of attention over the past few years due to the perceived safety of these more defensive companies. To highlight this, in September last year I closed a long-held position in consumer goods business Colgate-Palmolive, believing the valuation had simply moved too far. I recycled profits into a new holding, the US-based drilling rig equipment maker National Oilwell Varco, which I think is a great company whose potential was being overlooked by the market, and this was reflected in its attractive valuation. From a pure sector perspective, I tend to avoid utilities companies, as well as the telecommunications sector, as regulation often caps the profitability of these businesses, and hence they are unable to reinvest and grow their fundamental value in line with my investment thesis.”
Stephen Thornber, Threadneedle Global Equity Income: “We favour financials and particularly private equity, asset managers and insurers. The sector is a beneficiary of strong market performance, rising interest rates and an improving global economic environment. Of the defensive sectors we are most positive on Telecommunications, where we own both Asian telecom’s with attractive growth, and their developed market counterparts which are benefitting from consolidation and an improving regulatory environment. In energy and materials we see the US as having a long-term price advantage in Natural Gas, thanks to its shale reserves. We own a number of stocks benefitting from the growth in production from the shale region, and consumers of the cheap gas that is conferring a huge cost advantage on parts of US industry compared to the rest of the world.”