Equities a “win-win” for investors, says Investec’s King
The manager believes that even if economic data disappoints, central banks will continue to intervene with stimulus measures, pushing prices higher.
Equities are an attractive prospect for investors whether macro or corporate data surprises to the up or downside, according to fund manager Max King (pictured)
While there are various arguments for and against optimism in the eurozone and company profitability next year, the manager of Investec Diversified Income thinks it is a good time to buy equities regardless.
"If the economic outlook improves and earnings forecasts pick up, the current valuation of the market will appear cheap," he said.
"The valuation on a prospective 2013 basis is not significantly higher than that seen in March 2009, when equities recovered strongly. If estimates for corporate earnings in 2013 start to rise, there will be no holding the market back."
"On the other hand, if the economic news continues to be disappointing or the eurozone starts to unravel, there can be little doubt that central banks around the world will inject liquidity into the global economy. The Federal Reserve has made a commitment to do so with the recent announcement of QE3 while the ECB will do 'whatever it takes'."
"Sooner or later, a powerful factor will kick in: the realisation that equities represent an each-way bet."
His views directly contradict those of Newton’s Tineke Frikkee, who said in a recent FE Trustnet article
that she expects a severe correction in equity markets in the near future.
King is personally optimistic about the outlook for global and corporate growth, and is positive on a medium-term basis. However, he says he will be keeping an eye on attitudes towards monetary easing, as any U-turn from central banks will change his outlook completely.
"We believe that the time to buy equities is now, while monetary policy is extremely loose," he continued.
"As growth picks up and corporate earnings catch up with the market, the sceptics will, at last, turn positive."
"However, with a tightening of monetary policy then looming, it will be time to turn cautious. Until that point is reached, there are some excellent returns to be gained."
King co-manages Investec Diversified Income with John Stopford. The two only took over the £74.3m portfolio in July this year.
He also runs the Investec Multi Asset Protector
and Investec Managed Growth
funds and previously headed up Investec Diversified Growth
According to FE data, he has returned 9.45 per cent over five years, compared with 3.46 per cent from his peer group composite.
Performance of manager vs peer group over 5-yrs
Source: FE Analytics
King acknowledges that there will be a degree of market volatility over the coming months, but believes investors will be rewarded with strong returns if they concentrate on the longer term.
He is particularly upbeat about the US economy and says the resilience of markets despite various macro headwinds bodes well.
"Pessimism about the US economy is exaggerated, but the increasing perkiness of equity markets indicates a simpler truth – that equity markets want to go up," he commented.
"Markets sold off by nearly 20 per cent in 2010, then bounced back. In 2011, they sold off by 20 per cent and quickly recovered. In spring 2012, they dropped only 10 per cent before recovering; investors had learned that selling into weakness meant missing out on the bounce-back."
"The increased resilience of markets, and consequent fall in volatility, reduces the risk of investment – and that makes investors willing to pay higher prices."
Chris Wise, investment director at Gemmell Financial Services, agrees that equities are now a good buy, but thinks investors should approach them with a sense of caution.
"In the current market environment, there are certainly reasons why equities may be looking positive; however I would say that investors should concentrate on specific equity selection," he said.
The IFA prefers what he calls "safer" options.
"If you want to buy equities, focus on equity income funds and look to mainstay areas such as the US and the UK over emerging markets," he continued.
"I don’t think we are in the growth phase yet, so investors looking to gain exposure to equities should try to earn a yield from them instead of concentrating on out-and-out growth."