The last 15 years or so have been difficult for equity investors, with the Asia crisis, dotcom crash and global financial crisis all resulting in heavy losses over the period. However Train and Geffen think that investors with a long-term outlook should be optimistic, not least because of the lack of value in alternative asset classes.
Train (pictured), who runs three open- and closed-ended funds including the four crown-rated Finsbury Growth & Income trust, points to three big drivers for equity markets, the last being the most important: “We remain bullish for both global and UK equities,” he said.
“It seems to us that the background conditions are as encouraging for equity investing as at any time since, say, 1801, when the London Stock Exchange was founded.”
“For sure, three current macro factors are unequivocally positive. First, technology change is creating new industries, new companies and new opportunities for existing companies – at a faster pace than ever.”
“Next, the world’s population not only continues to grow, but in addition, more and more people on the planet are being lifted out of poverty.”
“Finally, the risks to the real value of the competing asset classes to equity – namely government bonds and cash – look as scary as ever. To us, that adds up to a compelling case to commit long-term capital to stocks.”
Performance of indices since Jan 2000
Source: FE Analytics
Train says it is impossible to say exactly how equities will behave in the short- and even medium-term, but that the long-term drivers mentioned above will eventually come through.
“The fact is Anglo-Saxon equities have delivered 6 to 7 per cent per annum total returns over and above inflation over decades, if not centuries,” he explained. “But they have never done so with a metronomic, regular 6 to 7 per cent per annum pace.”
“It is indeed hard, we might say impossible, to time the equity markets. And yet it is imperative investors maintain adequate exposure to equity.”
Train says this view explains why his Finsbury Growth & Income trust is fully invested, and geared at 5 per cent.
Geffen (pictured), chief executive of Neptune Investment Management and manager of 10 funds at the firm, thinks that the great rotation from cash and bonds into equities will be the biggest supporter of share prices in the coming years.
This, he explains, is why the vast majority of funds at Neptune are aggressively positioned at present, with a big tilt towards equities. “I think we’re on the cusp of a great rotation,” he said. “Year-to-date £21bn has gone into bonds and since May, £262bn has gone into equities.”
“Since 2007, £1.3trn has gone into bonds. When this starts to unravel, there is going to be a huge rotation into equities.”
Geffen says that even a small percentage of money coming out of cash and bonds can have a massive effect on equity markets. Given where yields are on both at present, he says it is only a matter of time before equities begin to benefit.
“Just 1 per cent from cash and bonds into Japanese equities adds 5 per cent to stock market performance,” he said. “In the US it adds 1 per cent.”
Geffen is more willing to put his neck on the line when it comes to predicting how markets will behave in the short-term. He thinks global growth next year could be as high as 4.5 per cent, suggesting that even the stricken eurozone could surprise on the upside.
“I think the second half of this year [for global growth] will really surprise people,” he said.
“2014 will be a year of good returns for equity markets. I said that last year and I’m saying it again.”
Year-to-date, the majority of global indices are up more than 15 per cent, according to FE data.
Performance of indices in 2013
Source: FE Analytics
The manager is particularly bullish about the outlook for Japan, insisting the current optimism surrounding the region is by no means misplaced.
“At the moment you’ve got low P/E [price/earnings] ratios and high earnings growth, which is a powerful mix,” he said. “I’ve put my ISA in to Chris Taylor’s [Neptune Japan Opportunities] fund, so that’s all you need to know.”
“I heard a market commentator say that Japan would go up 16 per cent next year. I think they’re wrong – it will go up more than that,” he added.
FE Trustnet will reveal Taylor’s bullish thoughts on Japan in an article next week.
Geffen has run the £970m Neptune Balanced portfolio for almost 15 years. The fund sits in the IMA Mixed Investment 40%-85% Shares sector, which means that it can have a maximum of 85 per cent in equities. FE data shows that the fund is currently at this limit.
In an article next week, FE Trustnet will look at other mixed and multi-asset funds that are either fully invested or in breach of their equity limit.
Both Train and Geffen are well ahead of their peers over the long-term.
Performance of managers and peers since Jan 2000
Source: FE Analytics
Geffen has come under some pressure of late, with a number of his funds underperforming over one and three years. These include Neptune Income, Neptune Global Special Situations and Neptune Russia & Greater Russia.
His numbers remain strong over the long-term though, on both a total return and risk-adjusted return basis.
Train, on the other hand, is among the best-performing equity managers over almost every time frame going up to 15 years. All three of the funds that he runs have either four or five FE Crowns to their name.
