Developed world markets have rallied over the last 12 months, leading some experts to argue a correction is imminent. However, Wilson says any sharp fall in share prices is likely to be short-lived.
Performance of indices over 1yr
Source: FE Analytics
The manager says investors should embrace any short-term tumble in the markets as a chance to pick up strong stocks at cheaper prices.
“Last year was a strong one for global equity markets and we are mindful that it’s all too easy to expect such conditions to continue. We would guard against complacency and believe a pull-back is likely at some stage,” he said.
“Should we see an equity market correction, we may well become more positive on equities, depending of course upon the extent of the pull-back.”
Wilson’s views echo those of star manager Sebastian Lyon, who recently warned equities were at risk of entering a bubble as share prices soar ahead of earnings growth.
Lyon is much more concerned about the potential impact of a correction, preferring to position his portfolio for capital protection instead of hunting for value buys.
Contrarian manager Alastair Mundy is another high-profile manager warning of an imminent correction. Mundy says he is sitting on a pile of cash waiting for a sell-off so that he can snap up new holdings at cut prices.
There are three key areas where Wilson is hunting for value buys.
Emerging markets
Wilson is making an early foray back into emerging markets. Many investors fled the sector after it fell in 2013 and emerging markets stocks have continued to underperform their developed market peers this year.
However, Wilson says the prolonged underperformance is making the sector look attractive from a value perspective, which is why he’s sticking with it in spite of macro headwinds.
“As far as the current investment backdrop is concerned, emerging markets are becoming an interesting value investment opportunity – as such, we are happy to maintain exposure to this area of the market,” he said.
“It has been a strange year to date: while large parts of the emerging markets have performed strongly, pockets of the developing world have really struggled.”
Europe
Wilson also prefers companies in Europe, where he says the improving political and economic situation is making firms look much more attractive from an investment point of view.
He adds that there are more value opportunities in Europe than the US, where the S&P has broken through historic highs.
“There is a sense the West is becoming subdued, whether that’s down to concerns over China’s shadow banking sector or the sustainability of the US economic recovery,” he said.
“In the US we wait to see whether the recent data weakness has been down to the unusually poor weather or deeper economic problems.”
“Until this becomes clear, equity markets are likely to remain in a state of flux – such an environment is tough from an asset allocation standpoint.”
UK
Wilson says the UK has made strong strides towards a full economic recovery and he thinks there are a number of companies within our own shores that are currently cheap and can offer strong growth.
“As for the UK, we believe economic progress has been made and see good relative value in the equity market,” he said.
One question looming on the horizon is the outcome of the Scottish referendum in September, but Wilson doesn’t think investors should worry about it yet.
“It is too early to speculative on ‘what ifs’,” he said.
The £166.3m Newton Managed Income fund has a solid long-term track record, outperforming the IMA Mixed Investment 20%-60% Shares sector over three and five years.
However, it has struggled over the last 12 months, picking up just 1.95 per cent while the sector gained 5.41 per cent, according to FE Analytics.
Performance of fund vs sector and index over 1yr
Source: FE Analytics
The fund has been exceptionally consistent over its history, outperforming the sector in each calendar year apart from 2013.
In the down markets of 2011, the fund protected capital better than its peers, returning 0.35 per cent while the sector lost 1.89 per cent.
It is, however, trailing the sector year to date.
Source: FE Analytics
The fund is paying out 4.11 per cent, making it one of the highest yielders in the sector.
The top-yielding Mixed Investment funds are currently the Scottish Widows HIFML Diversified Income fund, at 6.7 per cent, and the Schroder Managed Monthly High Income fund, at 5.6 per cent.
The Newton fund is invested in a mix of fixed income and equity holdings.
Wilson currently holds 18.5 per cent of the fund in cash and cash-related assets while equities currently make up the largest asset weighting, at nearly half of the portfolio.
Its equity allocation is split between the UK, European, US, Asia Pacific and international stocks.
Global fixed interest makes up 38.7 per cent of the fund.
Newton Managed Income requires a minimum investment of £1,000 and has ongoing charges of 1.4 per cent.
