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Don’t be afraid to be bullish, urges Neptune’s Wintle

28 January 2014

The Neptune manager says the recent setback in global equities is nothing more than a blip, believing that investors simply aren’t bullish enough given how positive fundamentals are.

Investors need to look beyond the pain of the dotcom crash and financial crisis and focus on improving fundamentals, says the manager of the £415m Neptune US Opportunities fund Felix Wintle.

Wintle is extremely bullish at the moment, despite the fact that the S&P 500 has almost doubled over five years, and rose by almost 30 per cent in 2013.

Like FE Alpha Manager John McClure, as FE Trustnet reported last week, he thinks most investors are too pessimistic.

“People talk about 100 per cent over five years, but that’s coming from a very low level,” he said. “Besides, I think people tend to get bogged down in where markets have come from. They should be thinking about where they are going.”

“The great thing about equities is that there is no upper limit. Markets can only fall 100 per cent, but they can rise by anything.”

Performance of indices over 5yrs

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Source: FE Analytics

Wintle thinks that the 100 per cent or so rise in the S&P 500 and MSCI World has spooked some investors because they haven’t been used to such a strong run in recent years. The manager says they need to instead focus on fundamentals, as history shows that the last 15 years have been particularly difficult.

“I think the last 10 to 15 years have definitely had an impact on sentiment, yes,” he said. “Again, investors tend to get bogged down in it.”

“I’m a big believer that sentiment is something that moves markets. The price of a stock is effectively the mid price between a bull and a bear. There’s a generation of people who are nervous, but I think fundamentals are strong enough.”

Performance of index since 1969

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Source: FE Analytics

FE data shows that over the 45-year history of the MSCI World, the last 15 years have been particularly volatile for investors. From a capital growth point of view the S&P 500 and FTSE 100 have only just broken even since September 2000, though with dividends reinvested the indices have made modest returns.


Capital growth and total return of indices since Sep 2000

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Source: FE Analytics

While he thinks valuations are fair, the main reason for Wintle’s bullishness is improving fundamentals, which should see economic policy normalise in the coming years. This, he says, will allow corporate America to thrive.

“At 16 times, earnings are about average looking at P/E [price/earnings] ratios over the last 10 years,” he explained. “It’s fair to say there isn’t a lot of cheapness in the markets, but I think investors get overly emotional when it comes to finding cheap companies.”

“Cheap is a relative term. Relative to bonds, equities are still cheap, and if you look at how solid fundamentals are now, they deserve to be at the levels they’re at.”

“If you look at American companies, they really are in incredible shape. Cash balances are huge at between £2trn and £3trn, and while this money has been used to pay out dividends and buy back shares in the past, management teams – although still cautious – are beginning to relax their shoulders and consider investing.”

“We are in a period where there is less macro stress, and while the market may struggle initially with the end of QE and rate rises, I don’t think it should – it’s the right thing to do.”

“I can’t recall in the last 14 or 15 years when all the developed economies have been firing on all cylinders, and for that reason I think we’re in for a really positive five to 10 years.”

Wintle admits certain sectors in the US – namely retailers and consumer discretionary businesses – could be at risk of earnings downgrades this quarter, but is still bullish on the medium- to long-term. He thinks the S&P 500 is still capable of double-digit returns this year, and over a five-year view says he wouldn’t be surprised if the S&P doubled again.

“Retailers have been hit by a particularly cold winter,” he said. “We try and focus on companies that concentrate on pricing power which can avoid these downgrades.”

“I do still think we’ll have a good year. I’m not sure we can repeat 2013 because 30 per cent for the S&P is a big number, but I wouldn’t be surprised if we saw double digits.”

Bears, such as FE Alpha Manager Martin Gray, point to high levels of government debt as a huge headwind to any talk of a bull market, but Wintle says equities and debt have little bearing on one another.

“When both debt and deficits are high, then you have a problem, but the fiscal and trade deficits have been brought down significantly, and in the US there is a plan to bring in healthcare spend as well,” he said.

Wintle’s bullish comments may be perplexing to some investors, given the poor performance of equities in recent days.

Following a strong start to the year which saw the FTSE 100 break 6,850 and the S&P 500 hit a fresh all-time high, markets have fallen back by up to 4 per cent on the back of weakening currencies in the developing world.

The manager is relaxed about the pullback, however, believing that it has little to no bearing on the performance of developed market equities.


“I think that it will be looked upon as a minor blip, certainly for the US anyway,” he said. “Emerging market currencies, particularly in Argentina, have had a tough few days and frightened a lot of people.”

“Many people are quick to say we could be on the verge of another emerging market currency crisis, but I think that’s very premature. The Argentine government has been propping up the currency for a long time and has announced that this will no longer be the case. There hasn’t been a run on the banks or a bond market collapse.”

“It’s big news if you’re invested in Argentina, but beyond that I’m not so sure. Some investors have seen it as an excuse to take some profits, which has added to things, but I don’t think it’s a big concern. We’ll certainly be monitoring things to see if the situation changes and we could have a softer period for a while, but I’m not too worried.”

Wintle says he hasn’t used the recent sell-off as a buying opportunity as he is already fully invested and markets have fallen far enough to make certain stocks cheap.

“In the last 14 months investors have used the dips to buy and it would be interesting to see if that happens again,” he added.

Neptune US Opps is playing the economic recovery with significant exposure to cyclical companies, including those in the consumer staples, financial, tech and industrial sectors. Neptune does not make stock holdings available.

Wintle has run the fund since August 2005, and since then has achieved top quartile performance in the IMA North American sector, with returns of 116.87 per cent.

Performance of fund, sector and index since Aug 2005

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Source: FE Analytics

The fund is also ahead of its sector and benchmark over one year, but had a poor period in 2011 and 2012.

Neptune US Opps requires a minimum investment of £1,000 and has ongoing charges of 1.62 per cent. Wintle previously headed up Neptune Latin America, Neptune US Max Alpha and Neptune Global Income.

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