2013: The penny may drop on equity opportunity, suggests Neptune
Neptune, the UK manager whose funds are also available in markets such as Austria, France, Jersey, Germany, and Switzerland, has said that in many respects investors in equity have never had a better chance to acquire long term returns from the asset class.
The message came at a meeting in London for financial intermediaries and investors, where it presented themes affecting its products in sectors such as emerging market equity, UK equity, income and balanced funds.
Robin Geffen (pictured), manager and CEO, said that 2012 had not been an easy year for investors, but that it was important to stick to principles and not engage in style drift. Neptune is known for applying a global top down view of sectors to identify investment opportunities, coupled with research into individual companies.
Equities have faced some technical headwinds in certain markets recently, he suggested, including thing trading volumes, which in turn have increased the impact of activities by certain types of investors such as hedge funds, which is something that can impact long only funds.
But, there are several factors in favour of equity investing currently, he stressed.
One is the high levels of dividends seen around the world. This is driven by improved corporate balance sheets. It also could be seen as an indicator that the equity cycle is bottoming out – high dividend yields mean that the market is not willing to pay a higher price per share, despite the cash on books. Geffen said there were instances in certain markets such as Russia, where the amount of free cashflow being generated meant that the price of a share could be repaid within three years from this alone.
In the UK he said companies’ balance sheets were the best they had been for a decade, and that meant they were amply able to pay dividends. Geffen said that 30 out of 33 stocks in the Neptune Income fund increased their dividend in the first half of 2012. And the trend towards increasing dividends is global; Geffen pointed to advertising agency WPP, insurer Legal & General, Microsoft and home care products company Proctor & Gamble increasing quarterly, interim or full year dividends.
Besides the strength of increased payouts to investors, there is also the possibility of re-ratings.
One of the messages Neptune offered investors was that it believed China was in a better position than some fear, and that in turn would spill over into implied benefits for all emerging market investments, particularly other BRIC markets given levels of trade between them. Geffen presented economic growth figures for next year pegging expectations for China at 8.3%, Russia at 4.2%, Brazil at 4.5% and India at 7.4%.
Japan could become a so-called “dark horse” next year, depending on how its upcoming election pans out. Geffen said the yen could weaken next year.
The US meanwhile could lead developed market recovery.
On the question of equities’ place in portfolio, Geffen said that investors in fixed income faced greatest risk at the long end of the market.
Policies such as quantitative easing were designed to combat deflation by stimulating inflation – the lesser of evils – but the challenge it has created is to push inflation down the pipeline. Should the intended economic growth materialise, then this will stimulate inflation.
Geffen said he was generally positive on global growth at the same time that equities remained undervalued with substantial upside potential.