UK closed ended managers relatively optimistic for 2012
Continuing rebalancing of the UK economy towards globally competitive manufacturing is a key reason managers in the UK’s investment company sector are maintaining a relatively positive outlook for equity returns in 2012.
Speaking at a briefing hosted by industry trade body the Association of Investment Companies, James Henderson, manager of the £400m Law Debenture Corporation, £200m Lowland Investment Company and £28m Henderson Opportunities Trust, and Andrew Bell, chief executive of £830m Witan Investment Trust, which operates an outsourced management model said there were good signs coming from individual companies, despite macroeconomic issues including concerns around the future of the eurozone.
Andrew Bell said that in broad terms his outlook was for slow growth in developed markets, but with certain areas of opportunity. So-called “put in your mouth” stocks – such as companies making things that people eat – would remain relatively attractive; technology stocks looked interesting but with a warning about valuations; emerging economies retain their ability to grow faster than developed ones, even if it is just a matter of “catching up”; and US growth could hold up better than in Europe.
Equities remained his preferred asset class because of the corrosive effect that inflation could have on fixed income. Bell said that investors buying government bonds for security reasons at before-tax yields of 2.5% were forgetting the lessons of the 1970s, which in the UK wiped out a generation of investors who had benefited handsomely during the 1950s and 1960s holding assets such as War
Bonds – perpetual fixed income instruments that lack a maturity date.
Another reason for Bell’s outlook was the suggestion that markets had been going through six-monthly cycles of optimism and pessimism since the 2008 financial crisis.
This left scope for investors to take a contrarian view. For example, he said that manufacturing output figures in a number of markets for the fourth quarter of 2011 suggested that the broader macroeconomic situation was “marginally less suicidal” than ongoing expectations. Further monetary policy loosening through quantative easing measures in the first half of 2012 could have a further positive impact.
Continental Europe is a major concern, he acknowledged, as the eurozone members struggled to reformulate what was effectively a politically constructed monetary union. However, a break up of the euro was still highly unlikely in his opinion: removing Greece was likened to “taking milk out of your coffee” – a very difficult thing to actually do in practice.