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Market sceptics are just jealous, says David Jane

The former head of equities at M&G says the majority of people who are predicting a correction are hoping the market will drop so they can “get involved”.

By Alex Paget, Reporter, FE Trustnet
Thursday March 07, 2013


Investors who are warning of a market pull-back are just frustrated that they have missed the rally, according to Darwin’s David Jane.

Jane, who runs TM Darwin Multi Asset, has a bullish outlook for global markets and says concerns over a correction are being hyped up by commentators who want to make money from cheaper valuations.

So far this year the FTSE has returned 9.69 per cent and at the time of writing it is at 6,440.

Jane, former head of equities at M&G, believes this is the beginning of a bull market, and warns investors not to get bogged down in short-term market volatility.

"There is clearly going to be some sort of correction because markets don’t go up in a straight line; however, I’ve been reading a lot of stuff from brokers around the country who are saying there has to be a 5 per cent correction in the markets."

"But really, the majority of people who have been banging on about a correction are frustrated they have missed the rally and they want the markets to drop so they can get involved."

"I met a high-profile industry pundit the other day who said: 'You are quite a rare individual because you were bullish and have remained bullish.'"

"There are a lot of people who are desperately hoping the market falls back so they can participate in the rally."

"Yes they could always flip back, but why? We had the madness surrounding the Italian elections and what did that do – on a three-day view, the FTSE was actually higher."

Jane has managed the £19m TM Darwin Multi Asset fund since its launch in June 2011.

According to FE Analytics, over that time the portfolio has been a top-quartile performer in the IMA Mixed Investments 20%-60% Shares sector, with returns of 14.13 per cent.

Performance of fund vs sector since June 2011

ALT_TAG

Source: FE Analytics

The fund has tended to be more volatile than its peers, however.

It has had a particularly good run during the market rally of this year and tops its sector in 2013.

Jane says that the uptick in global equity markets is a byproduct of a shift from fixed income assets into equities.

"The environment we are in is one where there is a correlation of interests between governments and central banks," he explained.

"The main pillar from that is this so-called great rotation and you can see the point. Governments and central banks want us to move into equities to create jobs and stimulate growth."

"You can’t fight against them; they have a bigger stick in the market now. You can understand this rotation because there is such under-investment in equities and real assets as so much money has poured into fixed income."

"Now there is a lot of evidence to suggest economies are recovering and equities offer better value. Equities are even yielding higher than high yield bonds – which has never occurred during my career," he added.

The manager says that investors can afford to remain bullish in spite of the recent surge in markets, as there has been an increase of M&A (merger and acquisition) activity.

"One of the big things to have changed recently is a pick-up in corporate sentiment," he continued.

"We have seen the likes of Mr Buffett putting money to work recently."

"We had a big day yesterday as one of our holdings – Vodafone – looked like it had come to a resolution with Verizon, which was very good news for shareholders."


"Big corporates don’t make these decisions if they are not comfortable – those are the rules of the game."

"After seven years of benign growth, only now has the Dow hit its 2007 highs. Yes of course there will be some sort of correction, but who can predict when that is going to happen?"

"I take a long-term view and with that rationale I think the best idea is to participate in the rally," he added.

TM Darwin Multi Asset has 49 per cent in equities and 22 per cent in fixed income. Jane says he has held more cyclical stocks for the last few months and is now finding more opportunities in the peripheral bond market.

"We had a lot of exposure to Japan before the election, which really helped the fund. In other markets, we have moved from defensive positions into more pro-cyclical stocks like Home Depot and, in Europe, Continental."

"We have some exposure to some Italian corporate bonds and govies. We are getting yields of around 3 or 4 per cent and I don’t think there is any chance of a default. However, they are very short duration."

TM Darwin Multi Asset requires a minimum investment of £1,000 and has a total expense ratio (TER) of 1.86 per cent.



 
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PKA Mar 08th, 2013 at 03:01 PM

People keep looking at the fundamentals but overlook the fact that the market ignored them when there was a huge sell off. What drove markets down was the fear of Armageddon, the fear of the unknwon...if banks can fail then everything must be about to fail, but thats not happened, growth will be slower but what was priced in wasnt slow growth, far from it, it was almost as though capitalism was to end and world war 2 rations were the future for the UK. Soverign Bonds are imo coming to an end...and possibly a sharp end of their 30 year run... For all those people who have doubted equities you have missed out on some fantastic returns and if you think future interest rates are going to keep apace with inflation I think you will be disappointed. Economies will have to inflate their way out of debt and equities are in the prime position to benefit from this...

Reply
valiant Mar 08th, 2013 at 03:51 PM

I haven't missed out on anything. I don't think interest rates will rise and I don't think inflation will be a problem
I would like to ask you a serious question. If you have found a way of getting rich, now and in the future, why do you want to help me to get rich?

Reply
sceptical Mar 08th, 2013 at 03:58 PM

Exactly, a lot of bulls coming out and talking their own book, desperate to get the retail investors in so they can sell up before fundamentals reassert themselves. Anecdotal evidence can be quite good here- read the Telegraph and you'll see a big increase in the number of adverts for equity funds, where previously MA was order of the day.

When all the papers agree (and the sentiment is largely bullish), its time to really look and be safe. Japanese reflation failure, US economy disappointing, EU disintegration, UK stagnation- all of these are plausible, if not likely, and could easily lead to a stock market sell off. Mr Buxton, whilst an excellent stock picker, blithely dismissed these- so much for climbing the wall of worry.

Reply
valiant Mar 08th, 2013 at 03:56 PM

They were bubbles, that's why they popped.

Reply
David West Mar 08th, 2013 at 01:33 PM

Well said Theo.
Warren Buffett said "Be careful when other people are greedy and greedy when other people are careful". This may be good advice in today,s frothy markets.

Reply
Sceptical Mar 08th, 2013 at 09:47 AM

Input costs are going up, profitability is coming down, companies cash positions are not any better than they were in 2007 (despite what is widely reported and, hence, added into the price), there is no significant growth in demand to drive earnings growth, and companies have largely reached the end of their cost cutting potential (miners excepted).

Stocks have a huge level of correlation to QE measures around the world just now- so people are buying because, after 5 years of what was supposed to be an emergency measure to restore liquidity, we still need to keep up QE? Why are people optimistic now when they weren't in 2009? what has actually improved since then?

The truth is that price is becoming disconnected from performance, and, as the manager actually alludes, people are buying because they don't want to be left out. This implies an expectation of further gains, and a negative shock could easily trigger expanding sell offs. Just because prices are not too extended yet, doesn't mean we aren't getting towards bubble territory.

Reply
roy Mar 08th, 2013 at 08:58 AM

Ok peter have it your way...but energy costs are sucking hugh amounts of money out of the "real economy " plus there is a hugh global over supply of goods.
Ive been investing now for nigh on 40 years and at the moment I see no value other than the age old salesmans come on of "relative value " the great otation...is that it?.
One day the Americans will put interest rates up and when they do ...watch this space.


Good luck

Reply
PKA Mar 08th, 2013 at 01:24 AM

why does everyone make the presumption that growth potential was priced into the markets before this rally? People were fearing Armageddon....slow growth has still yet to be priced in... also the FTSE 100 really isnt overly absorbed with UK growth. Most of its revenues come from abroad... All those have been knocking equities over the last few years have been proven wrong...

Reply
valiant Mar 08th, 2013 at 10:18 AM

The monetary policy of world banks is driving markets. This is producing bubbles and yes bubbles can go much bigger and last longer. Interest rates are low and QE continues. All I am saying is all bubbles burst. The question is when.

Reply
Muddy-Mae Suggins Mar 08th, 2013 at 03:16 PM

It's hardly a bubble when the market is about where it was 5 years ago and again 14 years ago.

The recent surge is mostly recovery. Now let's see the real bull run...

Reply
valiant Mar 08th, 2013 at 03:56 PM

They were bubbles, that's why they popped.

Reply
Ilmarinen Mar 07th, 2013 at 11:08 PM

Sorry to appear to be pedantic, but in the interest of precision it should strictly be 'envious' rather than 'jealous'. Envy is the green-eyed monster as intended here; jealousy, Othello's jealousy about his wife Desdemona's supposed adultery.

Reply
 

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Fund mentioned in this article

TM Darwin Multi Asset

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Group mentioned in this article

Thesis Unit Trust Mgmt Ltd

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Manager mentioned in this article

David Jane

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